14 April 2008

SHANGHAI - The head of China's largest soft drink maker, Wahaha, which is locked in a bitter feud with estranged French partner Danone, is under investigation for tax evasion, state media said Monday.

Wahaha Group chairman Zong Qinghou "failed to fully declare his earnings for years," Caijing Magazine reported, citing a tax official involved in the probe.

The report said Zong was initially suspected of evading a tax bill of nearly EUR 27 million (RMB 300 million) but had paid more than EUR 18 million (RMB 200 million) of that after tax authorities opened their investigation in October.

Tax authorities were trying to determine whether the last-minute payments had put Zong's outstanding tax bill under the threshold for criminal prosecution, the official was quoted as saying.

The report said Zong and his family received around EUR 45 million in compensation from Groupe Danone between 1996 and 2006 via bank accounts in Hong Kong.

A Wahaha spokesman was not immediately available for comment.

The two firms have been locked in a prolonged battle sparked by Danone's accusations that Wahaha defrauded the French firm by setting up its own companies to make products identical to those of their joint-venture firms.

Danone, which holds a 51 percent stake in each of the 39 joint ventures with Wahaha, filed a lawsuit on June 4 last year for breach of agreement.

It accused the Chinese beverage giant of selling Wahaha-branded drinks without its permission, and the case soon sparked a tit-for-tat series of lawsuits in China and abroad, even as far away as the United States and Sweden.

The two firms returned to the bargaining table after French President Nicholas Sarkozy urged his Chinese counterpart Hu Jintao to intervene, but Wahaha rejected a new tie-up proposed by Danone in March.

The French firm said at the time that negotiations were still under way.

[AFP / Expatica]