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Allegations of Tax Evasion Leveled Against Philip Morris After Increase in Cigarette Prices

The Supreme Court of Korea has ruled that Philip Morris Korea evaded close to 100 billion won in taxes by simulating wholesale sales of its stored cigarettes in anticipation of a cigarette tax increase in 2015. The Second Division of the Supreme Court overturned the original verdict in the special consumption tax lawsuit filed by Philip Morris Korea against the National Tax Service, which had called for a tax refund to the company. Originally, cigarettes were not subject to special consumption tax, but with the revision of the law in 2014, each pack of cigarettes was taxed an additional 594 won. The price of cigarettes rose from 2,500 won to 4,500 won in January 2015. Anticipating this increase, Philip Morris Korea manipulated their computer system to make it appear as though they sold cigarettes to wholesalers in 2014, prior to the price increase.

The National Tax Service argued that Philip Morris Korea had sold its stored cigarettes to wholesalers after January 2015 but had manipulated the sale to appear earlier in order to evade the additional special consumption tax. The company was then taxed 99.7 billion won. Philip Morris Korea objected to the decision and filed a lawsuit when their objection was rejected by the Tax Tribunal. Both the first and second trials accepted the company’s claim that the cigarettes were shipped to wholesalers in 2014, before the special consumption tax was applied. However, the Supreme Court viewed Philip Morris Korea’s temporary warehouses as a stopgap measure intended to accumulate inventory before the price increase, in order to profit from the price differential later on. The court ruled that the special consumption tax should be levied based on January 1, 2015, when the cigarettes actually moved from the temporary warehouses to the wholesalers.

This ruling by the Supreme Court of Korea signifies a major blow to Philip Morris Korea, as they will now have to pay the 99.7 billion won in taxes that they had evaded. It sets an important precedent in terms of tax evasion cases, emphasizing that companies cannot manipulate their sales records to evade taxes. The court’s decision also highlights the government’s commitment to cracking down on tax evasion and ensuring that all companies pay their fair share. It serves as a warning to other companies that engaging in similar practices will not be tolerated and that they will face legal consequences. Overall, this ruling demonstrates the importance of upholding tax laws and the role of the judiciary in ensuring that companies fulfill their tax obligations.



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