PERNOD-RICARD - URD 2021-22 EN
4. Risk management Risk factors
b. Risks related to taxes and levies (1)
RISK IDENTIFICATION AND DESCRIPTION
POTENTIAL IMPACTS ON THE GROUP
An increase in import duties and excise taxes or a change in laws relative to duty free sales could result in an increase in the price of the Group’s products and a reduction in the consumption of its Wine & Spirits brands or an increase in the Group’s costs, thereby affecting the Group’s financial position and operating profit. Nevertheless, this risk is qualified by the size of advertising and promotional investment which can, in certain cases, limit the impact on consumption of an increase in prices. Other changes in tax regulations could also have a material impact on the Group’s results, such as an increase in the corporate tax rate in the countries in which the Group operates. Lastly, in the event that the tax authorities successfully challenge the Group on any material positions, the Group may be subject to additional tax liabilities that may have an adverse effect on the Group’s financial position if they are not covered by provisions or if they otherwise trigger a cash payment.
As an international player in the Wine & Spirits sector, the Group is very sensitive to changes in indirect taxation, in particular customs duties and excise taxes on alcoholic beverages, such as the temporary retaliatory duties introduced by the US government in 2019 on imports of single malt Scotch whisky and Spanish wines, followed by duties on certain categories of Cognac in 2021 (transatlantic dispute known as Airbus/Boeing, where the US measures consisted of commercial retaliation to European subsidies for the aerospace industry). The Group is also exposed to possible changes in tax regulations, in particular concerning direct taxation, in the countries in which it operates, notably at the instigation of the OECD, the European Union or national governments (including tax rates), and accounting policies and standards. Lastly, Pernod Ricard may be subject to tax audits in several countries, and there is no guarantee that the tax authorities will validate the positions taken by the Group, even if the Group deems them to be correct and reasonable in view of its operations.
RISK CONTROL AND MITIGATION
The Group has a tax policy based on compliance with applicable laws and regulations, sound conduct and proactive and efficient tax management. It involves the rejection of all artificial arrangements, the application of a transfer pricing policy based on the arm’s length principle, efficient organisation of the tax function within the Group and a transparent attitude towards the tax authorities. Very often, when the Group is confronted with increases in customs duties that affect the entire wine & spirits industry in a given country, the authorities of the exporting country provide their diplomatic support to resolve the problem. As a result, European governments opened a dialogue with the US government to eliminate customs duties arising from the Airbus/Boeing dispute. This action led to the temporary truce in the dispute and the suspension of retaliatory tariffs concerned in the spring of 2021 lasting until June 2025. Furthermore, the Group’s diversification in terms of geographies and product categories mitigates the potential impact of tax risks.
Note that this risk is also covered in Subsection 3.4.1.5 of the Non-Financial Information Statement. (1)
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Pernod Ricard Universal Registration Document 2021-2022
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