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 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 special consumption tax law in 2014, each pack of cigarettes was taxed an additional 594 won, and the cigarette consumption tax increased from 641 won to 1007 won. The price of cigarettes rose from 2,500 won to 4,500 won in January 2015.
Philip Morris Korea anticipated this increase and erected temporary warehouses from September to December 2014, manipulating their computer system to make it appear as though they had sold about 191 million packs of cigarettes to wholesalers before the price increase. The National Tax Service argued that the company had actually sold the cigarettes to wholesalers at an inflated price after January 2015 and manipulated the sale to appear earlier to evade the additional special consumption tax. The company was taxed 99.7 billion won (US$77.8 million). Philip Morris Korea objected and filed a lawsuit, but the Supreme Court ruled against them, stating 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 sets an important precedent in terms of tax evasion by large corporations in Korea. It sends a clear message that attempts to manipulate the system and evade taxes will not be tolerated. The Supreme Court's decision to uphold the tax on Philip Morris Korea's stored cigarettes reinforces the importance of upholding tax laws and ensuring that all companies pay their fair share. This case also highlights the need for stricter regulations and monitoring in order to prevent similar instances of tax evasion in the future.