India: AB InBev sets aside USD55 mln for tax liabilities

Anheuser-Busch InBev, the world’s largest brewer, revealed in a filing with the Hong Kong exchange that it has accounted about $55 million or Rs 380 crore as liability in its books, though it has challenged Indian tax authorities that accused the American firm of avoiding taxes, the Economic Times reported on July 3.

In 2016, AB InBev acquired SABMiller for over $100 billion to create the world’s largest beer company, which in turn generated two legacy issues for them in India. For one, the Indian tax authority issued a demand notice for alleged capital gains tax liability last year on SABMiller’s 2006 acquisition of Foster's India business, trademarks and other intellectual properties.

While SABMiller had renamed royalty transactions as management services, the Authority of Advance Rulings, that examines cases of income tax liability involving non-residents in India, said the services qualify as technical know-how and should be taxable under Indian law.

“The company is challenging the tax demand on a number of grounds. The potential amount of potential liability is $55 million, which has been fully provided by the group's financial statements,” said Budweiser Brewing Company APAC in its prospectus for the Hong Kong initial public offering.

The Competition Commission of India (CCI) too opened an investigation last year on SABMiller and other brewers for price cartelisation. This is after AB InBev played whistleblower and informed the regulator of an industry cartel including United Breweries, part-owned by Heineken and Carlsberg, of discussing and deciding on beer prices before submitting them to Indian states, which controls pricing. These three brewers control over 85% of the country's beer market.

Budweiser Brewing Co, in its initial prospectus, said non-compliance resulted from lack of sufficient internal controls, awareness of competition laws, and training in such matters within SABMiller before it was acquired. “We took rectification actions upon becoming aware of the matter. None of the responsible employees are with AB InBev India today,” it said.

On July 2, Bloomberg reported that AB InBev’s Asia Pacific unit could raise as much as $9.8 billion in the Hong Kong listing. Experts feel contingent liability arising out of any litigation should be disclosed for the purposes of an IPO so that potential investors can make an informed decision.

“Laws in Hong Kong are quite stringent when it comes to investor protection and it is a wise decision by InBev NV to disclose the tax dispute with Indian authorities,” said Ashish Kumar Singh, managing partner at Capstone Legal.

Both these issues are not new in India. The country has seen nearly half a dozen large multinationals including Google, Vodafone and Shell getting involved in tax rows for issues ranging from capital gains to transfer pricing. Similarly, leading companies such as Ultra-Tech Cement, Jaypee Cement and Ambuja Cement and dozens of auto parts makers were fined for cartelisation last year.

With brands such as Corona and Haywards beer, AB InBev is the second largest brewer in the country with 23% market share, after UB that controls nearly half the market with 48.5% share, according to the prospectus quoting GlobalData.

04 July, 2019