Taxmen Keep an Eye on UK Distiller
By Kim Hyun-cheol
Staff Reporter
Korean tax authorities are monitoring the spat between the Korean Customs Office and Diageo Korea, refusing to rule out its intervention.
An official at the National Tax Service (NTS) told The Korea Times, ``We can leap in for a probe, if Diageo was proven trying to avoid duties and gave us a reason to believe that the case merits our involvement.''
The NTS' stance is the first time it has shown an interest in the case. The authority slapped Diageo with huge fines a couple of years ago.
The NTS official said on condition of anonymity that tax authorities are waiting the outcome of a probe by customs officials, saying, " Diageo Korea should cooperate to the best of its abilities."
"As long as Diageo Korea pays corporate taxes, the NTS can start its own investigation on the company," a researcher at the Korea Institute of Public Finance said on condition of anonymity. "Tax authorities will commence their job, if it considers the transfer price affected the company's reported profits, but in an independent way from the KCS."
Earlier this month, the KCS levied a record retroactive tax of 206.4 billion won ($150 million) on the local distributor of the world's largest distiller, which owns famous whisky brands Windsor and Johnnie Walker.
KCS accused the Korean unit of U.K.-based Diageo of underreporting prices of imported products for four years since 2004.
At the moment, customs and Diageo are showing no signs of reaching a compromise.
Diageo Korea has said it will "use whatever means it is legally entitled to." The National Tax Tribunal held the first hearing attended by representatives of both parties, but it ended without any progress. Diaego openly says that it will go as far as the case merits, citing similar cases that took years to be settled.
Even the date for the second review hearing is not confirmed.
There is another pending case involving a transfer price that has been ongoing for several years.
In 2004, the NTS imposed a 4.6 million-won tax on Amway Korea, the Korean unit of the American-based multi-level marketing company, on charges that it avoided taxes by manipulating transfer prices of products it imported from other foreign affiliates. The company imported them at a higher cost than normal in order to report less taxible profits by raising their prices here, according to the authority.
Amway Korea later paid the bill, but soon filed for a review and then further litigation. The case has yet to settled.
"Once again, we have nothing further to say at the moment," Diageo Korea spokesman Kim Young-jin told The Korea Times.