The tax authority in Hangzhou City, Zhejiang Province, has started probing the chairman of Chinese beverage giant Wahaha Group on tax evasion allegations after they received a report accusing Zong Qinghou of not paying nearly 300 million yuan (US$42.86 million) in income tax.

The allegations were filed in August and accused Zong of hiding "a huge income both at home and overseas," and not honestly reporting his income tax, China Business News cited Caijing Magazine as saying today.

It did not reveal who was behind the allegations.

The French food and dairy maker Danone, which has a joint venture with Wahaha, paid a total salary of US$71 million to Zong in the name of service fees and share dividends between 1996 and 2006, Caijing said, citing bank accounts between Danone and Zong.

The money was delivered to the Hong Kong-registered accounts of Zong, his wife Shi Youzhen, his daughter Zong Fuli and the Party secretary of Wahaha, Du Jianying, at Zong Qinghou's request, the magazine said.

The State Administration of Taxation demanded the Hangzhou Local Tax Bureau to look into the report and set up a case on Zong in November, the report said.

The case takes place as Zong's Hangzhou-based Wahaha, China's biggest beverage maker, is locked in a legal fight with Danone.

Danone, which owns a 51-percent stake in 39 Danone-Wahaha joint ventures, accused Wahaha of setting up independent companies and selling products identical to those sold by the joint venture. Danone had demanded a 51-percent stake in the non-joint venture companies, which Wahaha rejected.

Since mid last year, the two companies have filed numerous complaints and lawsuits against each other in various Chinese and foreign jurisdictions.

In December, both sides finally agreed to temporarily suspend lawsuits and arbitrations and stop issuing aggressive and hostile statements so that peace talks could restart. Danone has lost several lawsuits over the dispute with Wahaha in China.

China Business News contacted Zong Qinghou for confirmation of the tax evasion report but he refused to comment. He told China Business that he hasn't read any such media reports yet.

But Danone told the newspaper that related government authorities had made tax-evasion investigations at Danone since November. However, it refused to provide more details, the newspaper said.

The two sides also declined to offer any progress about their ongoing peace talks, the newspaper said.

In January, the president of Danone Asia Pacific, Emmanuel Faber, one of the key figures in the French food and beverage maker's estranged dispute with Wahaha, resigned from the Chinese ventures, a move that was considered a key in settling the row with Wahaha as soon as possible. The dispute has hurt the sales and reputation of Danone, according to previous reports.

(Shanghai Daily April 14, 2008)