Philip Morris Manipulated Tobacco Inventory to Evade 100 Billion KRW in Taxes... Supreme Court: "Stockpiled Cigarettes in Temporary Warehouse to Exploit Price Difference"

1st and 2nd Trials: "Within Reasonable Business Judgment... Not Avoiding Tax Increase"
Supreme Court: "Temporary Warehouse Created to Gain Difference from Cigarette Price Increase"

The Supreme Court ruled that Korea Philip Morris evaded nearly 100 billion won in taxes by fabricating sales of stockpiled cigarettes to wholesalers ahead of the 2015 tobacco tax increase.

The Supreme Court's 2nd Division (Presiding Justice Min Yu-sook) announced on the 27th that it overturned the lower court ruling which ordered the National Tax Service (NTS) to refund taxes to Philip Morris in the individual consumption tax cancellation lawsuit filed by Korea Philip Morris against the NTS, and remanded the case to the Suwon High Court.

Initially, cigarettes were not subject to individual consumption tax, but due to the 2014 amendment of the Individual Consumption Tax Act, an individual consumption tax of 594 won per pack was imposed, and the tobacco consumption tax increased from 641 won to 1,007 won. Accordingly, the price of cigarettes rose from 2,500 won in January 2015 to 4,500 won.

Korea Philip Morris, which produces and sells cigarettes such as Marlboro and Parliament domestically, anticipated this price increase and from September to December 2014, constructed a temporary warehouse and manipulated its computer system to stockpile approximately 191 million packs of cigarettes, fabricating sales to wholesalers before the price hike at the end of 2014. Tobacco tax is imposed when cigarettes manufactured at the factory and stored in the warehouse are transferred to wholesalers. The NTS found that Korea Philip Morris actually transferred the stockpiled cigarettes to wholesalers at the increased price after January 2015, but fabricated early sales to evade the individual consumption tax associated with the price increase, and imposed 99.7 billion won in taxes.

Korea Philip Morris contested the NTS decision, but when the Tax Tribunal did not recognize their claim, they filed a lawsuit.

The first and second trials accepted Korea Philip Morris's argument that the cigarettes in question were actually shipped to wholesalers in 2014 before the individual consumption tax was applied. They also regarded the temporary warehouse as a legitimate logistics facility established to respond to demand changes due to the price increase.

However, the Supreme Court's judgment differed. The Supreme Court viewed Korea Philip Morris's temporary warehouse as a makeshift facility established to stockpile as much inventory as possible before the price increase in order to later gain the price difference. The court ruled, "Even if the computer system shows that cigarettes were sold before the tax increase, the individual consumption tax must be imposed based on January 1, 2015, when the cigarettes actually transferred from the temporary warehouse to wholesalers."

This content was produced with the assistance of AI translation services.