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PMI to convert Greek cigarette plant to make iQOS sticks

Philip Morris International (PMI) will invest EUR 300 million (USD 323 million) to convert a Greek cigarette factory to into a plant capable of turning out 20 billion tobacco sticks for its iQOS heat-not-burn device, the company said.

http://www.tobaccojournal.com/PMI_to_convert_Greek_cigarette_plant_to_make_iQOS_sticks.54155.0.html

Expansion and remodeling the Aspropyrgos plant operated by affiliate company Papastratos will create 400 new jobs in addition to the 800 current ones, PMI said. Construction will begin immediately with operations expected to start in January 2018.

“This investment is further evidence of our progress towards a smoke-free future. We are encouraged by the 1.4 million smokers who have already switched to IQOS around the world, and we expect this momentum to continue,” said Frederic de Wilde, PMI regional president for the European Union.

Aspropyrgos will be the third facility dedicated to iQOS production. Production currently is centred in a specially built facility in Crespellano, Italy and a small scale Industrial Development Centre in Neuchatel, Switzerland.

Health Ministry sued over soft treatment of iQOS

Dubek, a manufacturer and importer of tobacco products, sued the Health Ministry for showing favouritism by allowing Philip Morris International to skirt advertising restrictions in marketing iQOS, the Jerusalem Post said.

http://www.tobaccojournal.com/Health_Ministry_sued_over_soft_treatment_of_iQOS.54143.0.html

Health Minister Ya’acov Litzman reportedly is waiting to see how US regulators deal with the tobacco heating device. In the meantime, iQOS is being sold and marketed without restriction in Israel. In its complaint to the High Court of Justice, Dubek said this discriminated against its tobacco products, which face restrictions, the Post said.

Tobacco company files suit against Health Ministry

Philip Morris chose Israel to be one of the first countries to market iQOS.

http://www.jpost.com/Business-and-Innovation/Health-and-Science/Tobacco-company-files-suit-against-Health-Ministry-484079

Dubek, Israel’s tobacco manufacturer and importer, filed a suit in the High Court of Justice against the Health Ministry on Monday for showing “favoritism” to the international tobacco company Philip Morris, which is marketing its no-smoke heated- tobacco cigarette iQOS.

Dubek said it is limited in marketing and advertising its own products, while Health Minister Ya’acov Litzman – against the views of public health professionals inside and outside his ministry – allows iQOS to be sold and advertised without limit.

This laxity will continue, Litzman decided recently, until the US Food and Drug Administration decides what to do about the product.

The sale and marketing of iQOS has been prohibited in the US and other countries until the FDA releases its ruling.

A few days ago, Avir Naki, a nonprofit organization that fights smoking, petitioned Attorney-General Avichai Mandelblit to revoke Litzman’s authority on all tobacco legislation and regulation because he has shown a “personal connection” to a number of issues relating to tobacco. Litzman met with Philip Morris lobbyists before announcing his decision.

Dubek said the ministry “has ignored blunt violations of the law for restricting advertising and marketing of tobacco products” by Philip Morris, thus carrying out unfair competition. It also charged that the Tax Authority does not levy sales taxes on iQOS and “causes a huge loss of revenue to the state coffers.” Sales taxes constitute 80% of the price of regular cigarettes.

IQOS, Dubek said, claims to be a “less-harmful product” than conventional cigarettes because the tobacco and additional chemicals are warmed but not burned.

But Philip Morris’s claim has not been proven, Dubek said, also complaining that iQOS is not required to carry any health warnings on the package.

Philip Morris chose Israel to be among the first countries to market iQOS, thus turning its population into “guinea pigs” in a “huge experiment for which we will all pay,” the Israel Medical Association’s Society for the Prevention of Smoking and Smoking Cessation said early this year.

iQOS: A Product Of Innovation Or Necessity For Philip Morris?

Philip Morris aims to garner 10-15% of its sales from its Reduced-Risk Products (RRPs) portfolio within a decade. It is betting on one such product, iQOS, and feels it will become more popular than e-cigarettes sold by other companies.

http://seekingalpha.com/article/4049300-iqos-product-innovation-necessity-philip-morris

Philip Morrris expects its RRPs to approach breakeven Operating Companies Income (OCI) in 2017, and to start contributing positively by 2018. It is targeting 30-50 billion units in incremental volume through RRPs, which would add an additional OCI of $0.7 billion to $1.2 billion by 2020, with an increasing confidence of reaching the upper end of the target range.

Conversion rates of iQOS purchasers who have fully or predominantly moved to the product have grown over time, and stood at approximately 70% at the end of 2016. As of year-end 2016, the company estimates that approximately 1.4 million adult consumers have quit cigarettes and converted to iQOS.

Philip Morris International (NYSE:PM) uses the term Reduced-Risk Products (RRPs) to refer to products with the “potential to reduce individual risk and population harm, in comparison to smoking cigarettes.” The company has a number of products in various stages of development and commercialization, with numerous scientific studies being carried out to determine whether the claims for reduced risks can be substantiated. The firm’s aim is to garner 10-15% of its sales from its RRPs portfolio within a decade.

The company is betting on one such product, iQOS, a black pen-shaped device that heats sticks containing tobacco, and feels it will become more popular than e-cigarettes sold by other companies. Philip Morris has collaborated with Altria (NYSE:MO) for developing its RRP portfolio, which includes joint research, development, and a technology sharing agreement, wherein the e-vapor products developed would be commercialized in the US by Altria and in markets outside the US by PM. The company is also leveraging the popularity of the Marlboro brand by deploying Marlboro heatsticks in iQOS

PM Thailand facing USD 2.8 billion in fines

Philip Morris Thailand was charged with underpaying import duty on cigarettes shipped from Indonesia, accusations that come one year after similar charges were filed over Philippine shipments, company documents show.

http://www.tobaccojournal.com/PM_Thailand_facing_USD_2.8_billion_in_fines.54073.0.html

Philip Morris International’s (PMI) Thai subsidiary faces fines totalling THB 100.6 billion (USD 2.85 billion) in the two cases, PMI said in its annual report filed with the US Securities and Exchange Commission. The latest charges filed on 26 January in Bangkok Criminal Court concern cigarette imports from Indonesia between 2002 and 2003, the document shows. The Public Prosecutor is seeking fines of THB 19.8 billion. A procedural hearing is scheduled for April.

A year ago, PM Thailand was charged over cigarette shipments from the Philippines between 2003 and 2007. Fines in that case amount to THB 80.8 billion. Trials are scheduled to begin late this year, the PMI filing shows.

Philip Morris Facing More Thai Tax Evasion Charges

By Bryan Koenig https://www.law360.com/articles/891973/philip-morris-facing-more-thai-tax-evasion-charges

Law360, Washington (February 14, 2017, 6:38 PM EST) — Philip Morris International Inc. announced a widening Tuesday of the government of Thailand’s long-running criminal investigation seeking billions of dollars in potential penalties based on allegations the company deliberately shorted cigarette import prices to avoid full taxation.

The charges announced in Philip Morris’ annual report with the U.S. Securities and Exchange Commission were filed Jan. 26 and follow charges levied against the company a year earlier. While the January 2016 charges are seeking more than $2 billion in fines purportedly stemming from imports from the Philippines, the new charges cover cigarettes imported from Indonesia, Philip Morris said in the report.

“The government is seeking a fine of approximately THB 19.8 billion (approximately $562 million). The first hearing, which will focus on preliminary procedural matters, is scheduled for April 2017,” Philip Morris said in the filing. “PM Thailand disagrees with the allegations and believes that its declared import prices are in compliance with the Customs Valuation Agreement of the [World Trade Organization] and Thai law.”

According to the cigarette giant, the Thailand Department of Special Investigation, or DSI, probed Indonesian imports and the subsequent excise taxes and customs duties paid from 2000 through 2003. The late-January charges the public prosecutor filed in Bangkok Criminal Court also targeted a Thai ex-employee, Philip Morris said.

The company stands accused of working with the employee “with the intention to defraud the Thai government” on “under declared import prices of cigarettes” from 780 import entries between January 2002 and July 2003, all to avoid full taxation and duties, according to the filing.

The charges filed last year against Philip Morris (Thailand) Ltd. and seven current and former workers in the same court followed an investigation into the period from 2003 to 2007, according to the filing. Those charges cover allegedly “under declared import prices” from 272 entries brought in from the Philippines from July 2003 to June 2006, Philip Morris said.

“The government is seeking a fine of approximately THB 80.8 billion (approximately US$2.29 billion). The case is in the pre-trial evidentiary phase. Trials are scheduled to begin during the last quarter of 2017,” the company said.

“PM Thailand believes that its declared import prices are in compliance with the Customs Valuation Agreement of the World Trade Organization and Thai law and that the allegations of the public prosecutor are inconsistent with several decisions already taken by Thai Customs and other Thai governmental agencies.”

The Thailand charges are not the end of Philip Morris’ international tax woes.

Tuesday’s filing also discussed a South Korean Board of Audit and Inspection probe into whether inventory changes by cigarette companies like Philip Morris Korea Inc. complied with the country’s tax laws in the run up to a Jan. 1, 2015, cigarette tax increase. According to the filing, the audit wrapped up in November with the assessment of underpaid taxes and penalties. In order to avoid “nonpayment financial costs,” Philip Morris’ Korean affiliate paid the full amount of taxes assessed to the tune of about $185 million, according to the company.

Philip Morris also reported an early 2017 demand for around US$46 million total from other government authorities. The company vowed to appeal the assessments, while noting that the matter has been referred to the public prosecutor, who will investigate the potential for criminal charges against the company and others.

“If the public prosecutor decides to prosecute, it may seek up to three times the underpaid tax for company criminal penalties and up to five times the underpaid tax for individual criminal penalties,” the company said. “PM Korea believes that it has paid cigarette-related taxes in compliance with the South Korean tax laws.”

South Korea’s Ministry of Strategy and Finance has also filed criminal charges against the country’s Philip Morris unit and its managing director, according to the filing, which characterized the charges as allegations that it went over monthly product withdrawal restrictions imposed by the ministry. The public prosecutor will conduct an investigation into that complaint and make a decision about pursuing a case, according to Philip Morris, which noted disagreement with the allegations.

Does the public know that iQOS uses Cast Leaf technology to create its HEET stick capsules?

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PMI, BAT units fined KRW 300 billion for hoarding

The Korean affiliate of Philip Morris International (PMI) and a British American Tobacco (BAT) subsidiary were fined a combined KRW 300 billion (EUR 239 million) for hoarding, the Yonhap news agency said.

http://www.tobaccojournal.com/PMI_BAT_units_fined_KRW_300_billion_for_hoarding.54071.0.html

The companies were accused of building up inventories in advance of a 2015 hike in excise duties. Sale of the hoarded cigarettes after January, 2015, allowed the companies to avoid tax on the profits, according to Yonhap. PM Korea was fined KRW 218 billion and BAT Korea KRW 89 billion, Yonhap reported. The ruling has been appealed, the news agency said.

Philip Morris International Looks Toward A Smoke-Free Future

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Cautious on heat-not-burn

The European Commission is in favor of a cautious approach to heat-not-burn products because it believes that there is a lack of evidence relating to the short- and long-term health effects of using such devices.

This was part of the answer given by the Commission to questions raised by the Belgian MEP, Frédérique Ries.

In a preamble to her questions, Ries said that Philip Morris International had said that it intended to market its new ‘device for smoking’ in the UK, following its initial launch in Japan, Italy and Switzerland.

‘The distinctive feature of this new product, which has been named iQOS, is that it stands on the borderline between traditional cigarettes and electronic cigarettes,’ she said.

‘The major difference between iQOS and electronic cigarettes is that while the latter use a liquid transformed into vapor, IQOS heats the tobacco and keeps it burning [iQOS has been designed so as not to burn the tobacco it contains, only to heat it, as is implied in part of the Commission’s reply], which is very harmful to health.’

Ries asked whether the Commission concurred with health experts who claimed that marketing a hybrid tobacco product of this kind was a ploy to circumvent legislation in force and, in particular, all the requirements laid down in Article 19 of Directive 2014/40/EU concerning novel tobacco products.

‘What steps will the Commission take to thwart the strategies employed by cigarette manufacturers to sell alternative products that are still just as harmful to people’s health?’ she asked.

‘Will the Commission take this opportunity to alter its negative views on electronic cigarettes, which, as a growing number of cancer experts in the EU are now pointing out, do not contain any tobacco or tar and are helping many people to stop smoking?’

In reply, the Commission said it was closely monitoring the developments related to new tobacco products, including “heated not burned” tobacco products.

‘Currently, there is lack of evidence relating to short-term and long-term health effects and use patterns of these products,’ it said. ‘Therefore the Commission is in favour of a cautious approach.

‘At the same time, the Commission would like to underline that with regard to the sale, presentation and manufacturing of these products within the European Union, the relevant provisions of the Tobacco Products Directive apply and should be enforced. This includes the ban on misleading elements foreseen by Article 13 and notably any suggestions that a particular tobacco product is less harmful than others.

The Commission oversees whether member states fully and correctly apply the provisions of the directive.

‘With regard to e-cigarettes, given the lack of conclusive evidence relating to the long-term health effects, use patterns and potential to facilitate smoking cessation, Article  20 of the directive contains their regulation with an emphasis on safety, quality and consumer protection.

‘The rules for e-cigarettes nevertheless allow these products to remain widely available to consumers. A recent Commission report COM (2016) 269 underlines a number of  potential risks to public health relating to the use of ecigarettes, at the same time highlighting the need for further research.’