Procter & Gamble Unit Faces Back Tax Claim on Royalties

Tax authorities hit Procter & Gamble's unit in Russia with a back tax claim of $28.5 million, chiefly over its royalties to the U.S.-based parent company, Kommersant reported Friday.

The distributor paid from 2.5 percent to 7 percent of its sales revenues to Procter & Gamble Co. for the use of its trademark in 2003 and 2004, the report said, citing a document from a Moscow inspectorate of the Federal Tax Service.

Moscow Tax Inspectorate No. 48 said in the document that producers, rather than distributors, are required to pay royalties. Of the total amount of 670 million rubles being sought in taxes and penalties, 362 million rubles ($15.4 million) was for back taxes on the earnings paid as royalties, the document said.

The decision to seek the money was made by officials at the inspectorate on Dec. 14.

Viktor Kromarenko, a Procter & Gamble spokesman in Moscow, confirmed the claims and said the company was appealing them at a higher tax office, the Moscow City Tax Inspectorate.

The report did not describe how the authorities came up with the rest of the back taxes, saying only that 189 million rubles of the total amount was in penalties.

Procter & Gamble runs three plants in Russia, according to the local unit's web site, which describes the company as a "large local producer." The plants make detergents, including Ariel and Tide, diapers, shampoos and Gillette disposable razors.

It was unclear on Sunday what unit or units of the U.S.-based consumer-goods maker holds ownership of these plants. A call to the company's Moscow office went unanswered Sunday, but Kromarenko told Kommersant that the Russian unit was only a marketing company responsible for distribution and promotion of the company's goods.