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Japan Tobacco Faces New Tax Claim
Russia’s Federal Tax Service (FTS) has raised tax claims to Russia’s largest tobacco factory, St. Petersburg Petro, Kommersant reports. Petro’s subsidiary Japan Tobacco International (JTI) will have to pay around $15 million in back taxes for the year 2001. Last fall, other subsidiary of JTI faced tax claims and penalties for more than $70 million. Japan’s company is intending to appeal the FTS actions. The event has awed the market. FTS may raise similar claims against other tobacco operators.
Japan Tobacco International (JTI) owns Petro (St. Petersburg) and JTI-Elets factories with Camel, Winston, Salem, Peter the First as the core trademarks. In November of the past year, the company won the second standing on Russia’s market (18.4 percent) in terms of money, having knocked British American Tobacco (BAT, 18.2%) to the No.3 spot, said Business Analitika. It was No. 4 in terms of unit volume with 16.2 percent on the market, after Philip Morris (26.3 percent), Gallaher (17.1 percent) and BAT (16.7 percent). The sales reached $1.2 billion in retail prices of 2004. The company sells product in Russia through JTI Marketing & Sales.
Tax claims to Petro were put forward after the probe carried out in St. Petersburg in November-December of 2004. Tax bodies spotted large violations in respect for the year 2001, including the allegedly ineligible charging of 337 million rubles in loan interest to the prime cost.
To challenge the above conclusion, JTI submitted a detailed statement, saying that, in 2001, 95 percent of Petro stocks were held by the German division of JTI, which acted as a creditor. The double tax treaty made between Russia and Germany in 1996 sets forth deduction of the interest amount when calculating taxable income.
However, the FTS was not satisfied with the arguments. Pursuant to the tax ruling served to Petro early March, the company is to settle 282.591 million rubles in tax arrears and 136.005 million rubles in penalties, i.e. slightly less than $15 million overall. Petro intends to challenge the tax claim, insisting that the tax bodies have failed to understand accounting methods applied by the company.
It is the second sizeable claim filed by the tax bodies against JTI companies. In particular, JTI Marketing & Sales was claimed $79 million in back taxes. The amount was trimmed by the Moscow Arbitration by $10 million. The Federal Arbitration Court of the Moscow District will try the appeal on March 31. Most experts say the destiny of not only JTI but also of other transnational companies will depend on the award. A source with tobacco company, one of the direct competitors of JTI on Russian market, said on condition of anonymity “the systems of settlement between factories, sales structures and a parent company are very much alike, so we may face similar claim as well.”
Such concerns are shared by Sergey Shelekhov (Grandtabak). “The patterns used by JTI are applied by all transnational companies. Now, tax claims will be filed to all of them?” Shelekhov said.
www.kommersant.com
All the Article in Russian as of Mar. 21, 2005
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