Competitiveness: The Marlboro Man & Thai Tax Man on “The US$2 Billion Fight”

American cowboy meet Thai cowboy in a fight

by Pooky, this blog economics journalist

If latest information is correct, in a few days the Thai Ministry Commerce will rule if Thailand should hit Philip Morris, the make of Marlboro cigarette with a US$2 billion tax bill.

According to the Thai Ministry of Commerce, Philip Morris, undervalued the value of its Marlboro cigarettes import to Thailand, so that it could escape paying full tax.

Then apart from that, there is another investigation of the parent company of Philip Morris in Thailand to see if it broke the condition that sees it falls under Thai-America business treaty. In this case apparently, Philip Morris just registered the business as a research firm, but in fact went to sell Marlboro in Thailand.

In Thailand, Marlboro and its L&M brand, have been winning market shares away from the Thai Ministry of Finance controlled tobacco monopoly-a Thai state enterprise.

So looks like Philip Morris will be hit with a big back tax, and its business breaking Thai US treaty.

Some Thais says this will have significant Thai-US implications, while others says the implication will be on a much broader considerations.

“Transfer pricing is a sensitive issue that not only occurs by companies doing business with Thailand, but with Thai companies doing business with other countries. We clamp down on it, and others will clamp down on us. And if we do not watch out, it would also impact government policies-and Thailand is still at the mercy of other,” said Somphot, head of a Thai import export trading company, to a business newspaper, Siam Business.

According to Somphot, “Transfer Pricing” or the practices of setting up companies globally to hide the true cost of goods, for by-passing tariff and tax structure is widespread business practices.

The Thai tax and tariff departments have for the past 4-5 years been looking into the practice-but political pressured called the investigations off.

The rational was that wider trade and economics development efforts could be hurt. For example, Thailand depends on favorable tax treatment from the US on a variety of good. The Thai “Jewelry Industry” for an example, is able to compete in the US for one simple reason only and that is favorable tax from the US.

Observers said these “Getting Strict and Technical” with foreign business interest in Thailand, comes mainly from the build-up of Nationalism fervor in Thailand. It started with a witch hunt on foreign businesses using “Nominees” to get across laws on limits on foreign ownership in Thai firms. Then to property, with a great fear of foreigners buying up Thailand. Then to cases such as Philip Morris.

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