Diageo general information
Diageo plc is a London-based British multinational alcohol company. It was the world’s largest liquor producer until recently being overtaken by China’s Kweichow Moutai in 2017. It is the world’s biggest whisky producer.
Diageo’s brands include Smirnoff, Johnnie Walker, Baileys, and Guinness. It also owns 37% of the Moët Hennessy division of French luxury goods company LVMH. Diageo sells its products in over 180 countries and has offices in around 80 countries.
Diageo’s track record of unethical business practices speaks for itself. From its CEO lying on TV to appalling marketing campaigns, this alcohol giant is doing it all.
Diageo’s tax schemes
Both the Lux Leaks and the Paradise Papers have revealed shady tax practices of Diageo.
Tax avoidance scheme in France
At issue is the amount of debt interest Diageo has booked through its French subsidiary – payments that reduced its tax liabilities. The French government “intends to deny tax relief for certain interest costs”, Diageo informed its shareholders in the 2017 annual report.
The new French government alleges that Diageo’s way of dealing with debt interest was illegal and plans to impose a back tax on the company.
Tax avoidance scheme in the United Kingdom
The news about the alleged tax avoidance scheme in France comes just months after the multinational corporation was ordered to pay £107m by the UK tax authority as part of a long-running investigation into moving profit between its global businesses.
In 2015, the diverted profits tax regime came into force with the purpose of preventing tax avoidance by multinationals through imposing a 25% charge on taxable profits judged to have been artificially diverted from the UK. It was swiftly dubbed the “Google tax”.
The BBC reports, the HM Revenue & Customs (HMRC) dispute centers around profits that Diageo shifted between the UK and an offshoot in the Netherlands, where Diageo employs 220 people.
Diageo reports to its shareholders that it will pay the additional tax and interest of £107m for 2015 and 2016 up front and would then work to resolve the matter with HMRC over the next 12 months. A resolution is not expected until the third quarter of next year. The firm will not make a provision to cover the payment.
The Guardian reports that Diageo’s UK tax charge was £95m in 2016, but the multinational corporation may have paid less if one-off items were deducted. Diageo did not disclose the actual tax paid.
There has been a clampdown on tax avoidance by multinationals in Europe by national governments and the EU commission, the executive arm of the European Union.
Diageo’s bribery schemes
Bribery and tax scheme in India
From 2003 to mid-2009, over US$1.7 million in improper payments were allegedly made to hundreds of Indian government officials who were responsible for purchasing or authorizing the sale of Diageo’s products in the country. Diageo earned more than US$11 million in profits as a result of the increased sales resulting from these payments.
The multinational corporation allegedly obtained the following business advantage: US$11 million profits from increased sales of beverages.
Bribery and tax scheme in South Korea
In South Korea, Diageo allegedly paid over 100 million won (over US$86,000) to a customs official as a reward for his role in the government’s decision to grant significant tax rebates to the company.
Diageo also allegedly paid over US$100,000 in travel and entertainment expenses for South Korean customs and other officials involved in the tax negotiations.
Separately, the multinational routinely made hundreds of gift payments, totaling US$230,000, to South Korean military officials in order to obtain and retain liquor business at military canteens.
Previously, in 2009, South Korean authorities prosecuted several Diageo employees for bribery and tax evasion in connection with the conduct at issue in South Korea.
On July 27, 2011, without admitting or denying the SEC’s findings, Diageo consented to the entry of a cease- and-desist order prohibiting the company from future violations of the FCPA’s books and records and internal controls provisions. Diageo agreed to pay US$11,306,081 in disgorgement, a prejudgment interest of US$2,067,739, as well as a US$3 million civil penalty.
The multinational corporation allegedly obtained the following business advantage: Tax rebates worth US$50 million, along with increased sales.
Bribery and tax schemes in Thailand
From 2004 to mid-2008, Diageo allegedly paid approximately US$12,000 per month (totaling nearly US$600,000) to retain the consulting services of a Thai government and political party official who lobbied other high-ranking Thai officials extensively on the company’s behalf regarding pending multi-million dollar tax and customs disputes.
This lobbying contributed to Diageo’s receipt of certain favorable decisions by the Thai government.
The multinational corporation allegedly obtained the following business advantage: Favorable tax and customs treatment.
Diageo’s unethical marketing
Across its major brands and throughout history, Diageo has been exposed for using marketing campaigns, messages and images that are sexualizing, de-humanizing and objectifying women. Marketing campaigns like this contribute to a culture of male superiority over women and fuel men’s violence against women.
Corporate political activity
Diageo: Lobbying to lower liquor tax in Mexico
Diageo is lobbying the government in Mexico aggressively to stop taxing liquor products by price and switch to an alcohol tax regime based on a rate levied by alcohol content.
Pursuing profit interestsThe background for Diageo’s advocacy campaign is that luxury tequila, frequently sold at retail prices of hundred dollars a bottle or more, is a fast-growing product with potential of generating massive profits for the alcohol industry. However, Mexico’s current alcohol tax regime effects the price to increase and thus hampers sales.
Mexico’s ad valorem system puts a 53% tax on luxury liquor products, such as luxury tequila. At the same time, the tax put on beer, which is Mexico’s most widely used alcohol type, is 26%. Beer accounts for $24.6bn of the $35.7bn total Mexican alcohol products market, according to Euromonitor International,
Most recently, Diageo acquired a new luxury liquor brand called Don Julio. It is Mexico’s top super-premium tequila brand. Don Julio Real retails for $375 a bottle.
Ivan Menezes, Diageo’s chief executive, pushed his case for an overhaul of the alcohol tax regime at meetings with President Enrique Peña Nieto and Luis Videgaray, the finance minister. Sales of tequila reached $1.14bn in 2014.
Alcohol tax a public health measureAlcohol taxation is a win-win measure – both in promoting public health and in generating additional governments funds for health and social welfare spending.
Reviewed scientific studies provide consistent evidence that higher alcohol prices and alcohol taxes are associated with reductions in both alcohol consumption and related, subsequent harms. Results were robust across different countries, time periods, study designs and analytic approaches, and outcomes.