France’s Pernod suspends new investments in India, citing protracted tax fight


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NEW DELHI – French spirits group Pernod Ricard has suspended new Indian investments due to long-running tax disputes with authorities over the valuation of alcohol imports, according to two sources with direct knowledge and company letters consulted by Reuters.

Its shares fell 1.8% on the news, underperforming their peers.

The world’s second-largest spirits group says its legal wrangling has steadily worsened since its inception nearly 30 years ago, making it difficult to conduct business in the country and raising the prospect of a major financial blow .

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The maker of Chivas Regal, Glenlivet Scotch whiskey and Absolut vodka is lobbying Indian authorities, including Prime Minister Narendra Modi’s office, to resolve the issue.

“This perennial litigation has strained our ease of doing business and prevented further investment from our Paris (France)-based group for business expansion in India,” Pernod wrote in a November 24 letter to the Modi’s office. .

“These disputes initially arose in 1994 during the assessment of imports by customs authorities, have escalated year after year and are still ongoing.”

Pernod’s position casts a shadow over the company’s future growth in a region it says is among its « key strategic markets ». He expects India and China, the two most populous countries in the world, to drive most of the growth in the alcohol industry over the next decade.

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India’s $20 billion alcohol market is expected to grow 7% annually over 2021-2025, with whiskey and spirits being among the favorites, according to IWSR Drinks Market Analysis. Pernod accounts for 17% of the country’s alcohol market by volume, while Diageo has a 29% share.

In its letters, Pernod said there was a disagreement with officials over how the company values ​​its imported liquor bottles and raw materials and pays taxes on them. The first source said that Indian authorities have often alleged that Pernod suppresses import costs, which attract a 150% federal import tax.

Attaching the letter to Modi, Pernod wrote to India’s Central Board of Indirect Taxes and Customs (CBIC) on May 27 saying the lack of certainty in the valuation of imports was hitting its current business and having an « impact serious » about expansion plans.

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CBIC and Modi’s office did not respond to requests for comment on the letters, which were not previously reported.

Pernod, in a statement to Reuters, said it was in « continuing dialogue » with Indian authorities as it sought to find « a speedy resolution to this long-standing matter ».

The company is gathering all relevant information to assist in a proper reassessment by the authorities and aims to preserve Pernod’s rights while « avoiding any business interruption », the statement added.


Foreign companies in other sectors are also worried about the strict regulatory regime in India, where Modi is seen as promoting domestic companies. Global automakers, including Tesla Inc, for example, have complained for years about high taxes on imported cars and electric vehicles.

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In its November letter, Pernod shared its upcoming business proposals in India, which included a plan to set up new production lines to increase capacity by more than 40% per year by 2025, and increase export revenues by a third to $126 million over the next five years. .

The company’s plans were moving very slowly in light of legal disputes, and « everything is on hold, » the first source said of the company’s new investment plans.

His written pleas to Indian officials urge reasonable dispute resolution, asking for « benevolent consideration ».

The letters set out two issues: disputes in various courts over the valuation of the concentrated alcohol that Pernod brings in to make alcohol locally; and disputes over “original bottled” products like Chivas being imported in bottles.

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In both types of imports, Pernod’s methods of calculating costs and paying the related taxes have been questioned by the authorities, which has often led to shipments being blocked in various ports, according to the first source and the company’s letter of May 27.

In the event of the importation of bottles like Chivas, in particular, the authorities propose to add advertising and promotion expenses in the import value, and to pay a tax on this, a methodology with which Pernod is not okay, indicate the letters.

Any increase in taxes to be recovered several years after the products have been imported could « expose the company to an enormous financial burden », Pernod said in its May communication.

(Reporting by Aditya Kalra in New Delhi; Editing by Muralikumar Anantharaman)



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