Philip Morris says Indian partner charges machinery costs; calls it "business expense"

Godfrey Phillips India

14/03/2019 04:40

(Repeats story that ran Wednesday)
    By Aditya Kalra
    NEW DELHI, March 13 (Reuters) - Philip Morris International
Inc's  PM.N  Indian partner charges machinery-related costs for
manufacturing its Marlboro cigarettes in India, the company said
on Wednesday, following a Reuters article that showed it may
have circumvented foreign direct investment rules.
    Philip Morris has for years paid manufacturing costs to
Godfrey Phillips  GDFR.NS , despite a nine-year-old government
ban on foreign direct investment in the industry, Reuters
reported last week, based on a review of dozens of internal
company documents dated between May 2009 and January 2018. (https://reut.rs/2NIlHD8)
    Philip Morris and Godfrey have said they comply with Indian
rules.
    India prohibited foreign direct investment in cigarette
manufacturing in 2010. Ahead of the ban, Philip Morris formed a
new wholesale trading company with Godfrey in 2009, and the two
sides signed a procurement agreement. 
    Philip Morris' director for corporate affairs in India, R.
Venkatesh, said on Wednesday that under that agreement Godfrey
"manufactures Marlboro cigarettes and recharges any costs
related to special machinery for the manufacture" of those
cigarettes to the global tobacco giant's Indian unit.
    "This recharge is simply a business expense," Venkatesh told
Reuters by e-mail, adding that the arrangements were in "full
compliance" with Indian regulations.
    Philip Morris had not commented on the Reuters story after
it was published on March 6. On Monday, Godfrey told Indian
stock exchanges it was in compliance with Indian laws and any
suggestion it had violated foreign investment rules was
"completely misconceived and misplaced".  urn:newsml:reuters.com:*:nL3N20Y28G
    After the Reuters report was published, a senior official at
India's main financial crime-fighting agency, the Enforcement
Directorate, said Philip Morris and Godfrey were being
investigated for alleged violations of the country's laws. The
scope of the investigation, the source added, was much broader
than the issues highlighted in the Reuters story.  urn:newsml:reuters.com:*:nL3N20V2IZ
    Three former officials and one former head of the
Enforcement Directorate had reviewed the Philip Morris documents
for Reuters and said the dealings should be investigated for
potentially breaking the foreign investment rules.    
    "We remain available to discuss this matter further with the
appropriate regulatory authorities," Venkatesh said in his
e-mail to Reuters on Wednesday.
    Philip Morris paid Godfrey for items ranging from large
cigarette-making machines to costs of smaller equipment such as
barcode scanners and printers deployed in Godfrey's factories,
the Reuters review of documents found.
    Six invoices issued by Godfrey showed billing of 45.5
million Indian rupees ($644,200) to Philip Morris between
December 2013 and January 2018 for manufacturing-related
charges. 
    One invoice from January 2018 sent from Godfrey to Philip
Morris showed the Indian company had spent 206 million rupees
($3 million) on capital expenditure for Marlboro-related
manufacturing activities since 2009, though it was not clear how
much of that was paid by Philip Morris.
    Other than regular payments, Philip Morris also signed off
on one-time expenses and refurbishment costs incurred by Godfrey
on at least two occasions in 2013 and 2014. It then accounted
those transactions internally under a heading "Packaging -
Research", the documents showed.

 (Reporting by Aditya Kalra; Editing by Alex Richardson)
 ((aditya.kalra@thomsonreuters.com; +91-011-49548021; Reuters
Messaging: aditya.kalra.thomsonreuters.com@reuters.net (Twitter:
@adityakalra))