Clear The Air News Tobacco Blog Rotating Header Image

May, 2010:

Tobacco giant in IRD tax probe

imgname-british_american_tobacco_uses_soa_for_supply_chain-50226711-images-cigarette-supply-chainLast updated: May 6, 2010

Source: New Zealand Herald

The Inland Revenue Department is investigating transactions by the New Zealand arm of global tobaco giant British and American Tobacco as it pushes home the advantage created by its win over tax avoidance by foreign-owned New Zealand banks.

BAT (New Zealand), whose brands include Dunhill, Rothmans and Benson & Hedges, has provisioned almost $40 million in back taxes because of the IRD review of “a financing transaction undertaken by the company”, according to its report for the year to December 31, filed with the Companies Office.

“The IRD’s review is not yet complete,” BAT NZ said in notes to the accounts. “It has indicated to the company that is preparing an issues paper with respect to the transaction and will make that paper available to the company shortly for comment.

“In light of this and recent New Zealand court decisions which are widely regarded as indicating a conservative shift in tax jurisprudence in New Zealand, the directors decided to make a provision of the tax which may be imposed by the IRD in respect of the transaction.”

The bank tax avoidance cases saw BNZ, ANZ New Zealand, Westpac and ASB – all owned by Australian banks – pay $2.2 billion to settle with IRD last Christmas Eve over cross-border structured finance transactions undertaken in the late 1990’s and early 2000’s.

The banks had challenged IRD’s view that the transactions constituted avoidance, but settled after two separate High Court actions by BNZ and Westpac failed last year.

The transactions were only available to the local branches of foreign-owned companies because they exploited loopholes in New Zealand’s international tax law.

The hit to BAT NZ’s earnings comes as the government wallops smokers with three 10 per cent increases in tobacco excises over the next three years to discourage smoking.

The accounts show BAT NZ declared post-tax “comprehensive earnings”
of $53.2 million, compared with $106.1 million in the year to Dec. 31, 2008.

That was despite a small lift in total revenue to $293.2 million
($284.2 million the previous year), giving gross profit of $228.0 million ($222.8 million).

Income tax provisioning rose from $37.9 million the previous year to $81.1 million, of which $39.5 million was “under-provision for previous years”.

Meanwhile, the New Zealand arm of Imperial Tobacco – owner of brands including Camel, More and Drum – reported after-tax net profit of $12.5 million for the year to Sept. 30 in its Companies Office annual report filings. That compared with $10.8 million in the year to Sept. 30, 2008.

The huge impact of excise duties on tobacco companies’ operations is more clearly shown in Imperial Tobacco (New Zealand) Ltd’s accounts than BAT (NZ)’s.

Imperial’s total revenue for the last financial year was $266 million, of which $192.3 million was excise duties payable to the government. By comparison, “raw materials and consumables used” amounted to just $17.6 million for the year.

Dear Legco


Subcommittee on Dutiable Commodities
(Exempted Quantities) (Amendment) Notice 2010

6th May 2010

Dear Sir,

We are aware that Legco is receiving submissions at 16.40 hrs this afternoon on the above
subject and we are unable to attend at short notice. However we wish the following relevant
information to be brought to the attention of the Honourable Subcommittee…

Read the full document here.

Please see the WHO stance on Duty Free tobacco here.

Follow-up to the outcome of the Millennium Summit: China co-signs the US Resolution to the Prevention and Control of Non-Communicable Diseases

woman-smokingThat of course includes smoking.

Download the UN Resolution PDF in English here.

Trademark attorney: Tobacco companies have no case on plain packaging

6a00d83451c2d869e2010534ca6af8970b-800wiLast published: May 5, 2010

Source: Crikey

In response to last week’s plans by the government to restrict cigarette packaging to plain and standardised designs, the cigarette industry has warned that it will protect its intellectual property rights and claim compensation from the government. I saw a figure of $3 billion as a possible amount for that compensation. The government has denied that compensation would be needed. So who has the better case?

In my view, the government has the stronger position. No one is disputing that the government can restrict the appearance of packaging for goods; it already does this. But the government must pay compensation if it takes control over any property, and in this case the cigarette companies are complaining that they are losing some of their intellectual property rights, primarily their trademark and copyright intellectual property of their present cigarette packaging.

The problem the companies will have with this approach is that the new plain packaging will include the trademark, albeit in small-sized black letters in a standard font and position on the packet. Otherwise the consumer will not be able to ask for their preferred cigarettes at the point of sale.

Most trademarks are registered in just this form, as plain words in upper case, and this type of registration covers the word in whatever form it is actually used irrespective of whether it is in a fancy script or in a special colour or surrounded by graphics and attractive patterns.

For example, the word mark Winfield is Australian trademark registration No.369487 dating from December 18, 1981, and owned by British American Tobacco (BAT).

It is often overlooked that the primary right obtained from trademark registration is a negative right; it is actually the right to prevent other people from (mis)using the trademark. The proprietors may use the mark themselves subject to other laws, but they actually gain from registration the right to take legal action that will stop third parties from using the mark on the same or similar goods.

So, the change to plain packaging will not adversely affect this right. For instance, in the future if someone were to manufacture in Australia Winfield cigarettes in their present packaging for export to other countries, BAT would still be able to take action to prevent this.

The situation with copyright is broadly similar. It basically confers the right to take action against third parties who are copying and misusing the owner’s old packaging artwork and this right is hardly diminished by requiring plain packaging.

About 2900 trademarks are current registered in Australia covering cigarettes, and there are another 180 or so pending applications. But consumers do not see 3000 different brands of cigarettes when they go into a shop. What is happening is that the cigarette companies in many cases are double dipping, and obtaining multiple trademark registrations for each brand they own.

There are 17 trademark registrations and applications including the word Winfield, 22 including Pall Mall, and 11 including Horizon. These registrations include the basic plain word mark Horizon is registration 203429 dating from 1966, Pall Mall is registration 1062086 dating from 2005. But in addition to the plain version, which protects the mark in whatever appearance it is used, the cigarette companies have also re-registered the mark in a narrower form, including the get-up of the cigarette packaging.

BAT’s TM registrations  Nos.1226909, 1226913, 1226914, and 1226915 (without a colour restriction), all dating from 2008, cover different variations of the Pall Mall packaging:


It is unlikely that these registrations provide much additional protection over the broader 1062086 registration; perhaps they can help protect the logo, but possibly not, since it is really the presence of the Pall Mall words that make these distinctive, and in any case the ‘915 registration renders the first four redundant as it covers all possible colour variations of the logo.

This profligacy of trademark registrations, in many cases unnecessary from a trademark protection point of view, will inflate any claim to compensation to be made by the cigarette companies. In fact, the large number of trademark registrations of the whole appearance of the packaging in the light of prior registrations of plain word marks is fairly unusual in the trademark arena. I doubt if courts would be impressed by this approach.

An indication of why the government is now moving to enforce plain packaging can be gained from viewing BAT’s registrations Nos.1143366, 1143368, 1143369, 1143371,and 1129286:


Which provide an indication of the thinking of tobacco companies about where the packaging get-up may be trending, as well as perhaps giving the producers of the Mad Men television series pause for thought about their own intellectual property rights . These trademarks would seem to have a promotional aspect that would help negate the health warning on existing packets of cigarettes, should they be used.

The trademark register is also cluttered with many registrations of cigarette packaging and word marks that are probably no longer being used. For instance, BAT is still maintaining Strand as No.10699 dating from 1911 and Craven as registration No.2933 dating from 1906, which are seemingly no longer being used, though it is interesting imagining smokers asking for Craven brand cigarettes.

Such registrations would probably be invalid, because any registration for a mark that has not been used generally in a continuous period of three years is liable to be removed from the register, if an application to do so is made by a third party.

So for several reasons the intellectual property owned by cigarette companies will not be much affected by the restriction to plain packaging, or is based on redundant registrations directed to packaging variations of plain word marks that will still be being used. The cigarette companies could argue that the value of their goodwill in these redundant trademark registrations has been reduced and damaged, but assigning a value among the plethora of registrations will be difficult, and I believe probably will not much help the companies’ legal position.

Furthermore, the government is likely to be able to show a public benefit from restricting the packaging to a plain and standard form, by reducing the level of smoking in Australian society, as well as in improving its financial situation, because the new standard packaging should reduce smuggling of contraband cigarettes from overseas. Shops stocking traditional-looking packs of cigarettes will now be easy to spot as all Australian cigarettes will be distinctive in appearance, at least until other countries adopt similar procedures.

No doubt there will be more huffing and especially puffing from the cigarette companies about the requirement to use plain packaging, but ultimately, I believe this will prove futile.

Written by Glen Gordon

Clear The Air supports the abolition of duty-free concessions on tobacco products

dutyfree-at-ben-gurionThe Financial Secretary, in his 2010-2011 Budget, proposed to abolish duty-free concessions on tobacco products for incoming passengers to Hong Kong as a means to further protect public health. To implement the budget proposal, the Dutiable Commodities (Exempted Quantities) (Amendment) Notice 2010 was introduced. A LegCo subcommittee was formed to scrutinize the Notice and it is now inviting public to submit opinions on this Notice by 4 May 2010.

The  letters below are statements of our support to the proposal which is being prepared by COSH for submission to the subcommittee.

Chinese Letter PDF

English Letter PDF

Big tobacco’s huff and puff is just hot air

big_bad_wolf_cartoonLast updated: May 4, 2010

Source: The Age

Legal threats over plain cigarette packaging have no basis in law.

My late father, a Presbyterian minister, joked that on occasions he would write sermons with the following note to himself: ”Shout here, the argument is weak.” The tobacco industry is shouting very loudly about the Australian government’s proposals for plain packaging of cigarettes.

The industry claims the proposed legislation would be illegal and it would be entitled to massive financial compensation if such laws were passed. In line with my father’s approach, it needs to shout much, much louder because its legal arguments are anaemically weak.

The plain packaging proposals would restrict cigarette companies to identifying their brands with simple words in plain font only. No artwork would be associated with or part of the branding of the cigarettes. The intent is that smokers could continue to obtain the brand of their choice, but the visual appeal of the packets to non-smokers, especially children, would be reduced.

These are not recent suggestions. All aspects of the proposals, including their legal implications, have been the subject of global research and consideration for well over a decade. The government’s decision to adopt the proposals is the culmination of a detailed and thorough national and international process.

There are two main legal arguments put by the tobacco industry about the legality of the proposals. Neither withstands any meaningful scrutiny.

The first is that the proposals would involve an acquisition of property by the government, and that under our constitution the government can do that only on ”just terms”. The industry claims that mandating plain packaging would be an acquisition of its property rights in its trademarks, and such acquisition requires monetary compensation.

It is true that trademarks are property. What is not true is the suggestion that the proposals would involve the government acquiring those trademarks. The government wants to restrict the use of them by their owners but has no interest in acquiring them for itself. Highly respected constitutional law experts professors Greg Craven and George Williams have unequivocally rejected the industry’s argument. The industry will be hard-pressed to identify a constitutional law expert who disagrees with them.

The second argument is that tobacco companies have a right under international law to use their trademarks. They do not. No such words appear in the World Trade Organisation agreement dealing with intellectual property. A seminal decision of the organisation addressing the nature of a trademark owner’s rights stated categorically that trademark owners do not have the right to use their trademarks.

They are entitled to prevent others from using their trademarks, but that is all. In addition, the agreement has a provision stating that: ”Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health.” The trademark provisions of the agreement need to be interpreted in light of these fundamental and undeniable legal principles.

Finally, there exists an international treaty specifically dealing with tobacco issues. The World Health Organisation Framework Convention on Tobacco Control requires its 168 parties to implement a comprehensive prohibition on the promotion of tobacco.

In 2008, the parties to the convention unanimously adopted guidelines recommending that parties consider plain packaging in order to achieve that objective. Australia is simply intending to be the first cab off the rank in adopting that option.

If our government declined to take action every time an industry alleged its rights were being affected and the industry was therefore entitled to compensation, it would probably never take any action.

Instead of measuring the volume of the complaint, we should examine the legitimacy of the arguments and any conflict of interests of those who make the arguments. The tobacco industry’s legal arguments are simply not credible. They are a smokescreen designed to scare the government into backing down.

As to conflicts of interest, I should declare mine. On two occasions, the Cancer Council Victoria has supplied me with some very nice sandwiches and some orange juice, although I suspect the orange juice may have been reconstituted rather than fresh.

Those who are shouting on behalf of the tobacco industry may have been more richly rewarded by that industry, but it is a matter for them to declare their interests. Or not. In any event, the tobacco industry will struggle to find independent legal experts prepared to back its legal claims.

No doubt the shouting will continue for a while yet. There may even be litigation, although the industry may prefer not to be required by court processes to reveal how its promotion strategies influence the decisions of children. Ultimately, our government must maintain its resolve in the face of the industry’s bluff and unreasoning noise.

Written by Mark Davidson

Call for stricter smoking laws

070102_smokingban_hmed_1220phmediumLast updated: May 4, 2010

Source: Radio & Television Hong Kong

The government has been urged to expand legislation against smokers in non-smoking areas. The call came from a group of Hong Kong University medical students, who collected some 2,000 signatures in support of their campaign.

They said the administration should look into examples in Ireland, where a restaurant owner would also have legal responsibilities if its customers violated smoking bans there. The group said such stronger powers would have a greater deterrent effect against offenders.

Government Launches Crackdown on Smokers in Kashmir

2013853978_889485f52fLast updated: May 3, 2010

Source: News Blaze

Srinagar, May 3: The government in Indian administered Kashmir has a launched a drive against smokers to enforce a ban on smoking in public places.

A top civil official, Mehraj Ahmad Kakoo, led a team of inspectors which inspected various offices and hospitals in Srinagar, the summer capital of Kashmir, on Monday.

During the inspection, the team interacted with smokers and apprised them about the bad effects of smoking and warned them against smoking.

Meanwhile, cigarettes were confiscated from a shopkeeper, who was selling the cigarettes within 100 yards of Presentation Convent School Rajbagh. Approximately Rs 2000 was compounded as a fine and Cigarettes and Tobaccoo products worth thousands were seized and later put to flames.

The official team also registered challenges against 10 smokers and charged them with fines worth Rs. 2000.

“The squad is active against smoking in the public places and anybody found violating the norms will be dealt with by law,” a senior official said.

Two lawyers have filed a Public Interest Litigation against smoking in public places. The petitioners are seeking strict measures to prevent puffing at the public locations in accordance with the guidelines issued by the government and the Supreme Court of India.

Under Section-4 of the “Cigarettes & Other Tobacco Products (Prohibition of Advertisement & Regulation of Trade & Commerce, Production, Supply & Distribution) Act 2003 (better known as COTPA), smoking in public places is prohibited and any violation of this Act is punishable with a fine up to Rs 200.

Written by Fayaz Wani

Australian Tobacco Taxation

irscigarsvigA detailed analysis on Australia’s Future Tax System: Final Report

Download the Australian Taxation Report here.

New laws can curb smoking

cigarette_butt_tight_cropLast updated: May 3, 2010

Source: South China Morning Post

Our neighbours Down Under took a bold step forward regarding tobacco control last week.

The Australian government announced that starting on July 1, 2012, all tobacco companies will be forced to use plain packaging.

At the same time, the tax on cigarettes rose another 25 per cent from midnight, April 29.

This new legislation is an impressive step forward in helping to cut tobacco consumption and curb tobacco-related deaths.

The Australian government believes that the changes will cut the country’s tobacco consumption by 6 per cent. Here in Hong Kong, we appeal to the SAR government to follow suit. Lung cancer directly attributable to smoking still ranks as the leading form of cancer in Hong Kong, with more than 3,600 related deaths recorded every year. As increasing criticism surrounds Hong Kong concerning rising air pollution, this is a window of opportunity to do something positive in safeguarding the health of Hong Kong people.

By taking more drastic measures like the ones announced in Australia last week, we can work towards reducing tobacco deaths and further minimise the burden of cancer in our community.

Sally Lo, founder and chief executive, Hong Kong Cancer Fund