Tax Evasion, More Tax Evasion... Valentine Intoxicated by 'Illegality' [News AS]

National Tax Service Tax Audit Corporate Tax Surcharge
100 Billion Won-Level Penalty for Tax Evasion Imposed
600 Billion Won-Level Rebate Also Detected

"Isn't it enough for foreign companies to just pay taxes diligently in Korea?"

This is a comment on our article highlighting the high dividend policy of Pernod Ricard Korea, a French liquor company that owns Scotch whisky Ballantine's (November 28, 2024, ). Pernod Ricard Korea transferred all profits earned in the Korean market to its headquarters every year, showing stinginess in corporate social responsibility such as donations. Additional investigation revealed that the company was repeatedly fined for corporate tax evasion.

On the 27th, at Casa Alexis Dosan in Gangnam-gu, Seoul, Franz Horton, CEO of Pernod Ricard Korea (left), Miguel Pascal, Executive Director of Marketing (right), and Sandy Hislop, Valentine Master Blender, introduced the Valentine 40-Year Masterclass Collection The Waiting. Photo by Jo Yongjun

Pernod Ricard Korea Fined Tens of Billions in Corporate Tax

According to the Financial Supervisory Service's electronic disclosure system (DART) on the 5th, Pernod Ricard Korea, which has a fiscal year ending in June, reflected a corporate tax additional payment of 4.61092 billion KRW in its 2022 fiscal year (July 2022 to June 2023) audit report. The company stated that this additional payment was a tax penalty paid following a tax investigation, and the corporate tax penalty was accounted for as a corporate tax expense.

As a result, although Pernod Ricard Korea recorded its highest-ever sales of 185.3 billion KRW in that fiscal year, corporate tax surged to 17.7 billion KRW, and net profit for the period was only 33 billion KRW. This is significantly lower than the net profit of 40.9 billion KRW in the 2023 fiscal year, when whisky market contraction caused sales to shrink.

Pernod Ricard Korea's corporate tax evasion has been recurring. The company also paid an additional 1.69 million KRW in corporate tax in the 2019 fiscal year (July 2019 to June 2020) and 62.5 million KRW in the 2018 fiscal year (July 2018 to June 2019).

The company has a history of being fined over 10 billion KRW for tax evasion in the past. In 2014, the National Tax Service conducted tax investigations on two corporations, Pernod Ricard Korea and Pernod Ricard Imperial, and imposed fines exceeding 10 billion KRW, accusing them of tax evasion. At that time, the National Tax Service judged that the two companies inflated advertising expenses to reduce operating profits and thus pay less corporate tax.

When companies dispute corporate tax penalties imposed by tax authorities, they undergo tax objection procedures. They can request a pre-assessment review by the National Tax Service or file a tax appeal with the Tax Tribunal to contest the validity of the penalty. Pernod Ricard Korea also filed an appeal to cancel the penalty with the Tax Tribunal, but it was dismissed. Subsequently, the company filed a lawsuit and lost even at the Supreme Court.

In June 2014, Pernod Ricard Korea reflected a corporate tax penalty of 3.4 billion KRW in its financial statements following a tax investigation, causing its corporate tax burden to rise to 8.6 billion KRW. However, since the penalty was recorded as a non-operating loss (12.8 billion KRW), the net profit for the period turned negative 8.5 billion KRW, resulting in an actual absence of corporate tax burden.

In 2022, the company was also ordered by the Korea Fair Trade Commission to correct its practices and fined for providing rebates exceeding 60 billion KRW to entertainment establishments to unfairly attract customers. According to the Fair Trade Commission, Pernod Ricard Korea and Pernod Ricard Korea Imperial provided rebates by lending money to establishments at about 4% annual interest from October 2010 to June 2020, and then waiving the loan if the establishments purchased a certain amount of whisky such as Ballantine's and Imperial.

Over 10 years, rebates totaling 61.53 billion KRW were provided to 248 places nationwide, including room salons, karaoke bars, bars, and nightclubs. The Fair Trade Commission judged that this restricted consumers' choice of whisky and disrupted fair trade order in the whisky market, imposing fines of 459 million KRW each on the two companies. Article 45 of the Fair Trade Act prohibits rebates as "acts that obstruct competitors' customer attraction by providing benefits as a condition."