Diageo Korea is fined for paying off bar managers

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Diageo Korea is fined for paying off bar managers

Published: 23 May. 2016, 21:00

Diageo Korea, which distributes popular whiskies in Korea such as Johnnie Walker, has been slapped with a 1.2 billion won ($1.02 million) fine for paying off key managers in bars to push their products.

According to the Fair Trade Commission on Monday, the country’s No. 1 whisky distributor has paid a total of 14.8 billion won to bar managers since June 11 to promote their whiskey, Windsor, to customers. A total of 197 bars received such payments from Diageo Korea.

The company paid managers 50 million won on average, and the maximum payment made was 300 million won, the FTC said. Diageo Korea is the country’s No. 1 whiskey distribution company, with 40 percent of the market share. Its revenue amounted to 366.5 billion won last year. The No. 2 whiskey distributor, Pernod Ricard Korea, holds a 28 percent share, followed by Lotte Chilsung with 13.8 percent, Golden Blue with 10.8 percent and Hite Jinro with 3 percent.

Diageo Korea also covered additional taxes that 69 stores paid to the government in the form of direct cash transactions, paying for travel expanses and reimbursing wholesale payments in exchange for promoting its product against the competition, the FTC said. The additional taxes these stores had to pay were the result of the government’s reinterpretation of the comprehensive income tax in 2013.

Earlier, Diageo Korea helped key managers to pay their income tax payments, but starting in January 2014, the government concluded that the incentives that these managers received from the whiskey distributor should not be categorized under additional income but should instead be classed as comprehensive income.

As a result, the exempted tax rate was lowered from 22 percent to 3.3 percent, which meant that these managers had to pay more on their income taxes. Diageo Korea covered 364.5 million won worth of comprehensive income tax payments.

The FTC said the influence of these managers makes them the machers of the whiskey industry, as 89 percent of the company’s whiskey products are sold at such venues, whereas sales by major retail stores and supermarkets only account for 9.8 percent.

“[Diageo Korea] provided what is considered generally in society as excessive payments to middlemen for the purpose of manipulating customers,” the FTC said in a statement. “Their clients were lured by the offer of profits that transgressed normal promotional procedure in the form of covering taxes that their clients should have paid.”

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]