* Pernod at odds with Indian authorities over tax matters
* Differences between two sides on valuation of liquor
* Pernod told PM Modi's office disputes hitting investments
* French spirits firm one of biggest liquor companies in
NEW DELHI, July 12 (Reuters) - French spirits group Pernod
Ricard has warned India that a long-running tax
disputes with authorities on valuing liquor imports has
inhibited fresh investment and its current business, according
to company letters seen by Reuters and two sources with direct
knowledge of the matter.
Its shares fell 1.8% on the news in morning trade,
underperforming peers, and closed flat in Paris.
The world's second-biggest spirits group said in letters to
the government its legal wrangles have progressively worsened
since they first started nearly 30 years ago, making it tough to
do business in the country and raising the prospect of a major
The maker of Chivas Regal, Glenlivet Scotch whisky and
Absolut vodka is lobbying Indian authorities, including Prime
Minister Narendra Modi's office, to resolve the matter.
"This ever-lasting litigation has been a big strain on our
ease of doing business and has inhibited fresh investment by our
group headquartered in Paris (France) for expansion of business
in India," Pernod wrote in a Nov. 24 letter to Modi's office.
"These disputes initially arose in 1994 in import valuation
by the custom authority, have compounded year after year and is
Pernod, in a statement to Reuters, said it has been in
"continual dialogue" with Indian authorities as it looks at
finding "a swift resolution to this long-standing matter".
The company is collating all relevant information to aid in
the correct reassessment by authorities and aims to preserve
Pernod's rights while "avoiding any business disruption", the
After publication, a spokesman in France denied having put
new investments in India on hold, saying any reference to the
discussions with local authorities are "out of context."
Pernod's stance casts a shadow on future growth of the
company in a region it says is among its "key strategic
markets". It expects India and China, the world's two most
populous nations, to drive most of the alcoholic industry's
growth in the next decade.
India's $20 billion alcohol market is set to grow by 7%
annually in the 2021-25 period, with whisky and spirits among
favourites, IWSR Drinks Market Analysis says. Pernod accounts
for 17% of the country's alcohol market by volume, while Diageo
commands a 29% share.
In its letters to government officials, Pernod said there is
disagreement with officials over how the company values its
imported liquor bottles and raw material and pays tax on them.
The first source said Indian authorities have often alleged
Pernod suppresses costs of imports, which attract a 150% federal
Attaching the Nov. 24 letter to Modi, Pernod wrote to
India's Central Board of Indirect Taxes and Customs (CBIC) on
May 27 saying that the lack of certainty in import valuation was
hitting its current business and had a "severe impact" on
The CBIC and Modi's office did not respond to requests for
comment on the letters, which have not been reported previously.
"FINANCIAL BURDEN" RISK
Foreign companies in other industries too have had concerns
about the tough regulatory regime in India, where Modi is seen
promoting domestic businesses. Global automakers, including
Tesla Inc, for example, have for years complained about
high taxes on imported cars and electric vehicles.
In its November letter, Pernod shared its upcoming India
business proposals that included a plan to set up new production
lines to boost capacity by more than 40% a year by 2025, and
increasing export earnings by a third to $126 million in the
next five years.
The company's plans were going very slow in light of the
legal disputes, and "everything is on hold", the first source
said about the company's new investment plans.
Its written pleas to the Indian officials urge a settlement
of the disputes in a reasonable manner, asking for a
The letters state two issues: disputes at various tribunals
over valuation of concentrated alcohol Pernod brings in to
manufacture liquor locally; and tussles related to
"bottled-in-origin" products like Chivas that are imported in
In both type of imports, Pernod's costing methods and
payment of taxes thereon has been questioned by authorities,
which has often led to consignments being held up at various
ports, according to the first source and the May 27 company
In case of importing bottles like Chivas, specifically,
authorities are proposing to add advertising and promotion
expenses in the import value, and pay tax on that, a methodology
Pernod disagrees with, the letters state.
Any increase of taxes to be recovered many years after
products had been imported could "expose the company to huge
financial burden," Pernod said in its May communication.
(Reporting by Aditya Kalra in New Delhi; Editing by Muralikumar
Anantharaman and Edward Tobin)