* Tax department accuses Cadbury of avoiding $46 mln in
* Tax demand relates to Cadbury plant in northern Indian
* Cadbury says reviewing content of notice
NEW DELHI/MUMBAI, March 6 Indian tax authorities
have accused Cadbury Plc of misleading them about production
from a new factory to avoid about $46 million in taxes, a
government official said, adding to the chocolate maker's tax
woes in the country.
The case comes as India is aggressively pursuing tax claims
against multinationals as it seeks to rein in its budget
deficit, with Royal Dutch Shell, Vodafone Plc
and LG Electronics Inc among numerous firms involved
Cadbury set up a factory in 2005 in the northern Indian
state of Himachal Pradesh to take advantage of a 10-year "tax
holiday" scheme for companies that started production by March
31, 2010, said a senior official at the tax department.
The company, now part of U.S. snacks firm Mondelez
International Inc, in 2009 told authorities it had set
up another plant next to the existing one that should be also be
exempted from tax until 2019, said the official at the
Directorate General of Central Excise Intelligence.
However, the second plant was not operational as of March
31, 2010, when the tax holiday scheme ended, said the official,
who declined to be named as he was not authorised to speak to
the media. It begin commercial production a couple of months
A report on the Wall Street Journal quoted a former Cadbury
executive as saying an expansion of the existing factory had
been misrepresented as the construction of a second plant for
the tax exemption. The tax official did not comment on the
Cadbury did not comment on the detail of the allegations,
but said it was co-operating with the authorities.
"We are in the process of reviewing the contents of the
show-cause notice from the Excise Department and will respond to
it in consultation with our legal advisors," a Cadbury statement
TAX DEMAND NOTICES
The authorities have now asked Cadbury why it should not pay
2.5 billion rupees ($46 million) in factory-gate taxes for the
second plant for the period between May 2010 and January 2013.
The directorate official said that tax demand notices were
sent to Cadbury and its executives on Feb. 28 and the company
has been give a month's time to respond.
If the tax directorate was able to establish that Cadbury's
new plant became operational after the tax holiday scheme ended,
the company would have to pay taxes, tax consultants said. The
company is, however expected to challenge the notice, they said.
"Setting up of a factory and commencement of production
leave a trail which is undisputable," said the tax practice head
at a consultancy in New Delhi, declining to be named as he was
not authorised to comment on company disputes.
"My impression is that the directorate's findings are based
on specific facts."
In a separate case, the income tax department has accused
Cadbury's local unit of overpaying its parent company for brand
royalty and service fees, thereby lowering its profit in India
and resulting in a lower tax bill.
The company has challenged the ruling for 2007-08 and the
local income tax tribunal has granted a stay on the tax demand
upon payment of less than 10 percent of the amount.
Cases involving the internal transfer of goods, services and
assets -- known as transfer pricing -- have become a hot area of
international tax law as revenue authorities in many countries
have challenged companies efforts to minimise tax liabilities.
Cadbury was acquired by Kraft Foods Inc in 2010 in a $19
billion deal. Kraft then spun off its North American grocery
business as Kraft Foods Group.
Mondelez is the name of what remains of Kraft Foods Inc
after the spin-off. Its brands include Oreo cookies and Trident