US: Has Pepsi got a USD500 million tax bill?

A media release by lawyers for Winslow, who started the action, says "PepsiCo manufacturers brand names like Pepsi(TM), Diet Pepsi(TM), Pepsi Free(TM) and Mug Rootbeer(TM) in its Ireland facility. It then imports the cola soda beverage concentrate, "duty free" (or tax free) into the United States. PepsiCo has argued that the product is classified as an "odoriferous substance," because it contains the secret cola flavour. Mr Winslow has argued successfully so far, the cola concentrate is predominantly sugar and water, which is subject to a 6.4% tax by weight.

As alleged in the suit, each drum of soda concentrate can be worth a million dollars or more. In fact, during the 2004 to 2005 time period, PepsiCo imported more than a billion dollars worth of soda concentrate into the United States, tax free. Mr Winslow has alleged PepsiCo may well have avoided paying $500,000,000 in customs duties. If Winslow is correct, the Government can collect three times that amount plus penalties, pursuant to the False Claims Act, or $1.5 [milliard] for the national treasury."

The Judge in the White Plains court ordered "all proceedings in the action are stayed until further order of the Court, for a reasonable time to permit the agency [U.S. Customs Service] to exercise its primary jurisdiction to determine the proper customs classification."

So whilst not actually agreeing with Mr Winslow, the Court did not disagree with him either and in effect remitted the case to Customs for a decision.