Diageo Korea Faces W200 Billion Duties
By Yoon Ja-young
Staff Reporter
Diageo Korea, distributor of ``Windsor'' and ``Johnnie Walker'' whiskey here, is likely to see over 200 billion won in duties levied by Korea Customs Service for allegedly having underreported import prices. A legal battle is likely as the U.K. distributor is protesting.
The Korea Customs Service said it notified Diageo Korea that it would levy 206.4 billion won in import duties, liquor tax, value added taxes and other charges, for underreporting transfer prices from June 2004 to June 2007.
Multinational companies set transfer prices for transfers made within the organization. It is one of the main issues for regulators, as the multinational entities can manipulate prices to reduce taxable profits.
According to local media, the customs office came to its conclusion after comparing Diageo Korea's transfer prices with those of other liquor importers and analyzing costs.
``The duty tax is levied based upon the prices reported by the importer. We simply check the validity of the prices regularly,'' an official at the Seoul Customs Office said. He added that the last probe on Diageo Korea was in 2004, in which transfer prices of 2002 and 2003 were examined.
The liquor distributor, meanwhile, is protesting. It handed in an objection to the customs office for review, and a final notification is due next month.
``The tax has not been levied yet. We notified the liquor distributor of our view that more taxes should be levied but some legal procedures are likely to follow until the finalization,'' the official said.
According to local media, the liquor distributor plans to bring the case to the tax court.
If 206.4 billion won in tax is indeed levied, it would be a blow to the liquor distributor with the biggest share in the whiskey market here. It had its license suspended for several months in 2007 for alleged tax evasion.