The Antimonopoly Committee of Ukraine (AMC) continues to consider the case on government aid to PrJSC Philip Morris Ukraine, opened on January 3, 2020 due to an appeal from one of its competitors.
According to the information released on the committee’s website, in autumn of 2019, the committee received an application from one of the tobacco producers to verify information on illegal government aid due to the cancellation of the tax obligations previously determined for Philip Morris Ukraine by the State Fiscal Service.
The cancellation of tax obligations is one of the forms of government aid due to the law on government aid to business entities.
“Having received the application, the committee sent a request to the State Fiscal Service in accordance with the law. However, in response, the service provided explanations on the facts of tax obligations cancellation, but did not submit the necessary statement, which is a direct basis for initiating a government aid case,” the committee said.
Currently, the committee is analyzing the information provided by the parties of the case and other persons to make a decision. The committee also drew attention to the fact that the initiation of a government aid case is not the final conclusion about its admissibility or inadmissibility.
Philip Morris International is one of the world’s largest manufacturers of tobacco products. It produces cigarettes in more than 50 factories, sells them in 180 countries.
In Ukraine, the company has been operating for more than 20 years. It manufactures products in a factory in Kharkiv region.
Philip Morris Ukraine, British American Tobacco, JTI and Imperial Tobacco in Ukraine are mulling the possibility of decreasing production and later closing the tobacco factories on the territory of Ukraine over the adoption of the legislative requirement on the government regulation of markup on their goods by the Verkhovna Rada.
“The fact of adoption of this bill will have serious consequences for the industry. This is the absence of a transition period and implementation mechanisms. In the near future, this will expose our business to risks. We will be forced to consider the issue of producing our goods at other factories, since we do not even fully understand how to execute this bill,” Director of British American Tobacco Ukraine Simon Welford said at a press conference at Interfax-Ukraine on Wednesday.
He said that bill 1049, passed at second reading, introducing a single account for paying taxes and duties, the single social security contribution, sets a fixed markup for wholesale and retail traders of tobacco products at 7% and 13% of the maximum retail price per package.
General Manager of Imperial Tobacco in Ukraine Rastislav Cernak said that these legislative initiatives could entail an increase in the volume of illegal trade in tobacco products from 8.4% to 20%. At the same time, he said that over the past three years, the volume of the “shadow” tobacco market has grown by about seven times and this annually cost UAH 5 billion the national budget.
At the same time, Cernak predicted a 25% reduction in cigarette production. “Such a 25% drop, according to our estimates, will cost the national budget about UAH 7 billion. Therefore, we urge the Verkhovna Rada to revise bill No. 1049 and remove the amendment that establishes the regulation of the markup. We request that transparent lawmaking in Ukraine along with an open dialogue with major investors start working, as such significant changes in taxation force us to rethink our business in Ukraine,” he said.
Private joint-stock company Philip Morris Ukraine, a large tobacco company in Ukraine, saw a 3.4-fold rise in net profit in 2018 compared with 2017, to UAH 2.147 billion.
According to a company report in the information disclosure system of the National Commission for Securities and the Stock Market on holding the general meeting of shareholders on April 26, its assets last year grew by 5.7%, to UAH 10.51 billion.
The retained earnings soared eightfold, to UAH 2.374 billion. Total receivables grew by 10.4%, to UAH 7.475 billion.
The company plans to leave profit for 2018 in the company until the shareholders made a decision to pay dividends.
As reported, Philip Morris International Inc. cut shipments of cigarettes in Ukraine by 8.8% in 2018.
Philip Morris International is one of the world’s largest manufacturers of tobacco products. It produces cigarettes in more than 50 factories, sells them in 180 countries.
In Ukraine, it has been working for more than 20 years. Its production facilities are based in Kharkiv region.
Philip Morris International Inc. (PMI) Tobacco Company in 2018 reduced cigarette shipments in Ukraine by 8.8% from due to a decline in the overall market, which was partially offset by an increase in the total market share of heated tobacco products. The total volume of the cigarette market in Ukraine in 2018 decreased by 8.1% mainly due to an impact of rising prices and an increase in illegal trade, PMI said in an annual report. According to the company, the total volume of the cigarette market in Ukraine decreased by 8.7% in the fourth quarter of 2018 alone. Shipments of PMI cigarettes in October-December decreased by 10.4%.
Philip Morris International is one of the world’s largest manufacturers of tobacco products. It produces cigarettes in more than 50 factories, sells them in 180 countries.
In Ukraine, it has been working for more than 20 years. Its production facilities are based in Kharkiv region.
The Cabinet of Ministers of Ukraine has approved a draft amicable agreement between Philip Morris and Ukraine, foreseeing the abolishment of the tax notification for the amount of UAH 635.3 million by the State Fiscal Service of Ukraine.
According to the draft government resolution, this agreement should ensure the investment dispute settlement, prevent bringing a claim to international investment arbitration against Ukraine amounting to more than UAH 635 million, avoid significant expenses from the national budget during the arbitration, demonstrate to the partners of Ukraine and foreign investors that the government adheres to commitments to provide incentives and protect foreign investment.
The amicable agreement will be signed between Philip Morris International Inc., Philip Morris Global Brands Inc. (both the United States), Philip Morris Brands Sarl (Switzerland), PrJSC Philip Morris Ukraine and the state of Ukraine.
Acting Head of the State Fiscal Service Oleksandr Vlasov is authorized to sign the amicable agreement, and the State Fiscal Service is authorized to execute it after signing.
As reported, PrJSC Philip Morris Ukraine in March 2015 appealed and received permission from Kharkiv customs office to apply the processing mode in the customs territory of Ukraine for the production of cigarettes and accompanying products and their re-export for the period from April 1, 2015 through March 31, 2016. The company was authorized to conditional exemption from Ukrainian import duties and other import taxes on materials for processing under the terms of re-export.
After Philip Morris Ukraine carried out processing and re-export operations, the main directorate of the State Fiscal Service in Kharkiv region conducted an unscheduled inspection of the company’s compliance with the customs legislation of Ukraine regarding the clearance of goods in the processing mode in the customs territory of Ukraine.
According to the results of the inspection of the main directorate of the State Fiscal Service in Kharkiv region, on June 14, 2016, it approved decision notices that determined the liabilities for paying of import duties, additional import duty and VAT on the import of materials, as well as penalties for the total amount UAH 635.3 million Philip Morris Ukraine. Philip Morris Ukraine said that the actions of the State Fiscal Service are pressure on the company. After that, the parties entered into litigation.
Private joint-stock company Philip Morris Ukraine, a large tobacco company in Ukraine, plans to finish construction of a solid fuel boiler in September 2018 and switch its factory from gas to solid fuel.
Deputy Director General Ihor Kroshko said that investment in the project is around UAH 63 million.
“Any kind of granular biofuel can be used as a fuel, which will allow reducing greenhouse gas emissions several times. The boiler’s productivity is 6 tonnes of steam per hour and the capacity is 3.8 megawatts. The new boiler-house will completely cover the needs of the factory,” the company said.
Savings on the switch from gas to renewable energy, according to Philip Morris Ukraine, will be about UAH 15 million per year.
Kroshko said that construction of additional warehouses for storage of non-tobacco materials is also planned.
In 2017, investments in the factory exceeded $11 million (expansion of production facilities, modernization of storage facilities, launch of innovative products and new formats for export and domestic markets). At the same time, the total amount of investment in production facilities during the operation of affiliated companies Philip Morris International (PMI) in Ukraine amounted to $348 million.
