Diageo decides to settle customs row

By Lee Hyo-sik

Diageo Korea, a unit of the British-based liquor maker, has decided to settle a legal dispute with the customs agency over tax evasion.

This will end Diageo’s six-year-long legal battle with the Korea Customs Service (KCS), which imposed back taxes totaling 500 billion won ($455 million) on the company.

Diageo was accused of avoiding tariffs by under-reporting the import prices of its whisky products.

The company said Wednesday that it decided to accept a settlement mediated by the Seoul Administrative Court. In August last year, the court recommended that the customs agency slash the amount of back taxes it had imposed on Diageo by 40 to 50 percent.

The KCS had earlier indicated that it would accept the court’s arbitration.

One of the world’s largest liquor manufacturers is now expected to pay about 200 to 300 billion won in back taxes.

In 2014, Diageo Korea earned 360 billion won in revenue and had an 80 billion won operating profit. Some of its flagship products include Windsor, Johnnie Walker and Guinness.

“We decided to settle the case once and for all because we want to put it behind us and move forward,” said a Diageo official, who declined to be named.

“We have reached an agreement in principle with the customs agency to close the case outside of court. It will take about two months for us to estimate exactly how much taxes we will pay.”

The KCS imposed 500 billion won in back taxes on Diageo from 2009 through 2012, accusing the firm of underreporting the import prices of its products. The agency said the company filed a false customs report saying it imported whisky at prices as low as 50 percent of those of other liquor firms, in order to pay less customs duty.

In 2010, however, Diageo protested the KCS decision and filed a complaint against it with the Seoul Administrative Court.