PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

b. Taxes and levies  (1)

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

As an international player in the Wines & Spirits sector, the Group is very sensitive to changes in import taxes and excise duties on alcoholic beverages. The Group is also exposed to possible changes in tax regulations in the countries in which it operates, in particular 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.

An increase in import taxes, such as the US tarifs imposed on some brands, and excise duties 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 Wines & Spirits brands or an increase in our costs, thereby affecting the Group’s financial position and operating income. 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.

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. Furthermore, the Group’s diversification in terms of geographies and product categories mitigates the potential impact of tax risks.

(1) Note that this risk is also covered in Section 3.4.1.4 of the Extra-Financial Reporting.

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Pernod Ricard Universal Registration Document 2019-2020