FACTS on Thai Cigarettes (Phil) Philip Moris situation Public prosecutors decide to drop charge against Philips Morris

s March 4, 2011 - The Nation o Public prosecutors Friday decided to drop a tax avoidance charge against 14 executives of Philip Morris (Thailand). The Department of Special Investigation asked the public prosecutors to arraign the 14 executives on charge of falsifying price declaration of Marlboro and L&M brands of cigarettes to avoid paying import taxes to the full rates. The DSI alleged that Philip Morris had avoid paying excise taxes worth about Bt68 billion. But Wongsakul Kittipromwong, the director of the Special Cases Department of the Attorney General Office, decided that the evidence was not strong enough to make a case against the 14 executives of the firm. Wongsakul said he would inform the DSI director-general of the decision to drop the charge. The opposition plans to censure the government for having allegedly interfered in the case to help the cigarette firm. http://www.nationmultimedia.com/home/Public-prosecutors-decide-to-dropcharge-against-P-30150114.html DSI UNVEILS LETTERS TO BACK TOBACCO STAND PHILIP MORRIS CLEARED IN TAX INVESTIGATION Bangkok Post - 10 March 2011 o Letters from the Excise Department and the Customs Department persuaded the prosecution not to indict Philip Morris (Thailand) for false reporting of cigarette import prices, said a source at the Department of Special Investigation. o The two documents were unveiled yesterday after the DSI 's recommendation to indict the company for false reporting was rejected by the Office of Attorney-General on Jan 13. o The opposition Puea Thai Party believes Prime Minister Abhisit Vejjajiva may have been behind the AOG's decision, as he is concerned about Thailand's trade relations. They say his "interference" was improper. o The source cited two letters in 2009 sent to the DSI. o The DSI asked the two departments to check whether Philip Morris intended to report false prices of two imported cigarette brands to avoid paying high customs taxes. o In a letter dated Aug 28, 2009, the Excise Department cited an inspection carried out by the Customs Department which found no irregularities in the price reporting after it examined the Cost, Insurance, Freight (CIF) of the products. o The Excise Department later asked the Customs Department to reexamine whether the prices of cigarette lots had been falsely lowered. o In its letter dated Oct 8, 2009, the Customs Department said it doublechecked the price reports filed by Philip Morris and found the company had done nothing wrong. o The DSI is now checking all documents relevant to the case. Among them are findings compiled by DSI investigators working under former DSI chief Thawee Sodsong and a 40-page document of the decision to drop the indictment by Thanapitch Mulpruek, chief of the Department of Special Litigation under the Office of the Attorney-General. http://www.bdo-thaitax.com/bdo/in-the-news/3014

The Nation Cigarette Scandal Blown out of Proportion EDITORIAL 2011-03-15

In the censure debate, the opposition will try to hammer the govt on an old tax controversy, but is this really Thailand's most pressing problem? When the opposition Pheu Thai Party takes the government to task for its mishandling of the Bt68-billion cigarette tax issue this week, the public will likely hear charges of the government's tweaking of the legal process to end disputes with US tobacco giant Philip Morris. The no-confidence debate starts today and runs until Friday. The cigarette tax story started in 2006 when Thailand's Department of Special Investigation (DSI) was told to examine an allegation that Philip Morris had underdeclared the value of its products imported into Thailand. According to King Power, the Thai duty-free retail operator, the price of its Philip Morris cigarettes was about Bt27 per pack, but another importer, a unit of Philip Morris, declared similar products at a price of only about Bt7 per pack. In other words, there was a value discrepancy of around Bt20 per pack, prompting the Thai authorities to accuse the US firm of massively underdeclaring the value of its products to evade taxes. But there was an explanation that the price of around Bt27 per pack was based on supplies from Malaysia, while the latter price of about Bt7 was based on supplies from the Philippines. One was a retail price and the other was wholesale. Yet, Thai authorities came up with the figure of Bt68 billion by multiplying Bt20 by the number of cigarette packs imported into the country by Philip Morris at the time. While the case was still pending, Philip Morris placed a guarantee of around Bt2 billion with Thai customs authorities in order to get its products released from warehouses for domestic sale. This sum has already been returned to Philip Morris, according to a Thai official. However, the case is still not closed and might be further complicated by this week's censure debate. On the one hand, the DSI earlier attempted to charge the US firm with falsely stating the value of its imports, thus causing damage to Thailand. On the other, Thailand recently lost a case against the Philippines at the World Trade Organisation regarding the valuation of cigarette imports for tax purposes. Thailand is meanwhile lodging an appeal with the WTO. In the Thai taxation court, Philip Morris also filed a lawsuit against the Thai Excise Department, which is responsible for collecting excise taxes on cigarettes and other special products. The court acquitted the Excise Department, but Philip Morris has since lodged an appeal, which is pending. The DSI has not decided whether it will pursue further legal action against Philip Morris by itself, after public prosecutors in January this year said they had dropped the charges against the US tobacco firm. Given this, the opposition has accused Prime Minister Abhisit Vejjajiva and Kiat Sithiamorn, the president of the Office of Thai Trade Representatives, of interfering with the legal process via public prosecutors to aid the US firm. Besides the alleged government interference issue, the opposition will also have to

convince the public during the censure debate in Parliament that the Bt68-billion in damages allegedly caused by import undervaluation is really the big issue. At face value it may look like the government has lost a huge amount in tax revenue, but the tax calculation method may still be open to question. More importantly, the credibility of both Prime Minister Abhisit and chief Thai trade representative Kiat - who allegedly has played a leading behind-the-scenes role in ending some of the disputes between Thailand and the US tobacco giant in return for some unspecified favours - is at stake. In addition, Philip Morris has threatened to file counter-suits against Thai authorities for causing damage to its reputation. As far as the pricing of cigarettes is concerned (Bt7 per pack at wholesale prices), the country's anti-smoking lobby should also take a close look at this issue.