hankyoreh

The South Korean unit of Britain’s Diageo Plc, the world’s top liquor company, is under investigation for alleged engagement in improper business activities, including tax evasion, local tax authorities said.

An official with the National Tax Service said that its investigation has found evidence that Diageo Korea, which sells whiskey brands such as Johnnie Walker and Windsor in Korea, has been involved in diverse improper business activities such as the sale of liquor to unlicensed retailers, false transactions, and non-payment of additional taxes. The official asked not to be named owing to the sensitivity of the ongoing investigation.

"The investigation is currently focused on whether Diageo Korea violated the local Liquor Tax Law," another NTS official said on condition of anonymity.

As stipulated by the law, if the amount made through illegal activities exceeds 10 percent of a company’s entire sales, Diageo Korea could lose its liquor license here. If the amount made is below the 10-percent cutoff, its business will be temporarily suspended. "Based on the findings so far, the company will very likely be subject to either license revocation or business suspension," he added.

South Korea is Diageo’s fifth-largest market for its liquor products. The British government reportedly expressed regret over the tax investigation through diplomatic channels in an apparent attempt to rescue the liquor company from its predicament.

But a South Korean trade official said on condition of anonymity, "While the British side brings up the Diageo issue, it is continuously demanding a cut in liquor taxes here. Our stance, however, is that false transactions are illegal and should not be a component of trade negotiations."

Diageo Korea confirmed that a tax probe is underway but declined to comment further. The company took in around 400 billion won (US$426 million) in Korean sales last year by selling 940,000 crates of whiskey. Its Korean market share was 34.6 percent, competing to unseat the top seller Jinro Ballantines, which took up 35.5 percent of the Korean market.

The National Tax Service is reportedly planning to complete its investigation by the end of April. If Diageo Korea suffers more than a license supension, it is expected to have a huge impact on the Korean whiskey market.
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