The Supreme Court of Korea has overturned a ruling that awarded Philip Morris Korea a tax refund, reports Business Korea. The case has now been sent back to the Suwon High Court.
The dispute stems from 2014, when fiscal authorities announced new cigarette taxes that caused the price of pack of cigarettes to increase from KRW2,500 ($1.95) to KRW4,500 in January 2015.
The National Tax Service (NTS) argued that Philip Morris Korea had sold cigarettes stored in purpose-build warehouses to wholesalers at an inflated price after January 2015, but had manipulated the sale to appear earlier in order to evade the additional special consumption tax that followed the price increase.
When the NTS demanded tax payments of KRW99.7 billion, Philip Morris Korea challenged the decision, first the Tax Tribunal and then in court.
The lower court accepted the company’s claim that the cigarettes in question 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 as much inventory as possible before the price increase, in order to profit from the price differential later on.
“Even if the computer system shows that the cigarettes were sold in advance before the tax increase, the special consumption tax should be levied based on Jan. 1, 2015, when the cigarettes actually moved from the temporary warehouses to the wholesalers,” the court said in its ruling.