Pepsi to use Irish-registered firm to cut tax bill in Russia

Pepsi Bottling and PepsiCo are likely to slash their tax exposure in Russia by using an Irish vehicle to assume control of bottling operations there.

Two existing Irish subsidiaries, Pepsi Bottling Group (PBG) Ireland and PepsiCo Ireland, have formed an Irish-registered joint venture called PR Beverages.

PBG, listed separately from PepsiCo having been spun off from the company in 1999, is transferring all of its assets in Russia to the new Irish firm. These include a bottling operation in St Petersburg, which opened in 2005, and other bottling facilities in cities such as Moscow and Yekaterinburg.

PepsiCo and the PBG hope the new Irish company will enable them to expand business operations in Russia and "respond more quickly to market dynamics", said PBG chief executive Eric Foss. The group did not respond to inquiries concerning the joint venture or its tax implications.

Russia's corporate tax rate can be as high as 24 per cent - almost twice that in Ireland. While the Russian rate may be cut to 20 per cent in the near future, Pepsi and the bottling arm are likely to generate significant savings by routing their Russian sales through Ireland.

Pepsi Bottling's effective tax rate in 2005 was 33.7 per cent, 1 per cent lower than in 2004.

A number of multinationals based in Ireland use the State to reduce their overall tax liabilities.

The Irish Times recently revealed how US firm San Disk made profits of almost $106 million (€79.7 million ) on $955 million in revenue from an Irish subsidiary that employed just a handful of staff.

No breakdown of PepsiCo's Russian sales is available but, in its last annual report, the company said sales in the country had experienced double-digit growth.

In its annual accounts for 2006, PBG said it commanded a 23 per cent market share for all carbonated drinks sold in Russia. Much of that revenue could now be filtered through Ireland.

PBG Ireland owns 60 per cent of PR Beverages, while PepsiCo Ireland owns the remainder.

PepsiCo says it will issue PR Beverages bottling contracts for Russia, while PR Beverages will also hold the licence to manufacture and sell concentrate into Russia.

PepsiCo will recognise earnings from PR Beverages as equity income, effectively a dividend from the Irish firm.

PepsiCo maintains its worldwide concentrate manufacturing headquarters in Cork, where it has two facilities employing more than 350 people.