Corporate income tax and other taxes can generate necessary revenues and prevent passing the bill for funding today’s society to future generations. Excise tax can also ensure that societal costs are reflected in a product’s price, thereby encouraging consumers and producers of these products to shift to less harmful options.
PMI is a good corporate citizen everywhere we operate. Paying taxes commensurate with our economic activities is not only our duty but the responsible thing to do and a key component of our social contract in every country in which we do business.
In addition to the taxes reported by PMI legal entities, third-party importers and distributors in many countries are responsible for paying import duties and excise taxes on our products. Though such payments may not appear in PMI’s financial statements, they represent a portion of the product taxes paid by our consumers worldwide and so are included in the table below.
Our tax strategy
Legal obligations and societal expectations require that our transactions are based on sound tax strategies and that we act in good faith in all interactions with tax authorities and other stakeholders. In this regard, PMI has developed the PMI Global Tax Documents, including all global and affiliate tax policies, standards, and guidelines.
PMI’s tax strategy is to maintain a comprehensive, effective, and practical risk management program, shared best practices, a structured and documented control framework, proper planning, and coordinated decision-making. These measures ensure that tax positions taken are appropriate and tax compliance and reporting mechanisms are robust.
Moreover, PMI considers it important to have in place tax principles and practices that allow us to pay our taxes in a sustainable manner by balancing the interests of our various stakeholders, including our consumers, our investors, and the countries where we do business.
PMI’s consolidated reporting of income taxes follows U.S. Generally Accepted Accounting Principles (GAAP) and Securities and Exchange Commission (SEC) rules and regulations.
Management
PMI’s tax strategy and its implementation are the responsibility of the PMI Tax Department, a centralized, fit-for-purpose global organization led by Vice President Tax who reports to PMI’s Chief Financial Officer. PMI Global Tax Documents are standardized and applied consistently.
Principles of tax governance
PMI has implemented governance arrangements that set clear accountabilities for the management of tax compliance and tax planning.
The PMI Global Tax Documents are designed to ensure clarity regarding:
- Roles and responsibilities: PMI Global Tax Documents clearly define roles and responsibilities with respect to tax matters.
- Involvement of the PMI Tax Department: PMI colleagues consult with the PMI Tax Department on all important transactions, whether recurring or new, as well as on business structures and operations involving other PMI affiliates or
unrelated parties. The PMI Tax Department determines positions, exposures, and actions regarding material, non-routine tax or customs matters. Where there is sufficient uncertainty over the appropriate tax treatment of a particular transaction
or a potentially significant impact, PMI obtains external advice.
- Tax reporting and procedures: PMI has designed its Global Tax Documents to have effective and predictable tax compliance and control measures in place. All tax filing obligations (internal and external) must be accurately completed on a timely basis in accordance with applicable laws and regulations. In particular, the PMI Tax Compliance Program establishes an overarching framework for the management of global tax compliance and risk across the company. This program includes guidance on defining roles and responsibilities, personnel training and development, involvement of tax advisers, master data management, contract management, interacting with tax authorities, and preparing for audits. It also provides guidelines for specific tax areas, including indirect taxes and customs topics, corporate income tax, withholding taxes, and transfer pricing.
- Documentation and tax records: The PMI Tax Department is part of the team responsible for the appropriate creation, retention, and/or oversight of all relevant local tax records in each affiliate.
- Support and review of business activities: The PMI Tax Department reviews business structures and transactions to identify potential tax risks. For new business activities, the PMI Tax Department is involved in every step of the process, from the setup of business models and agreements to discussions with tax authorities.
Business and economic substance
As of December 31, 2023, PMI products are sold in more than 175 markets worldwide. The company has over 160 affiliates that operate in more than 90 countries and 50 manufacturing facilities. Our business structures have commercial substance and purpose.
PMI supports the work of the Organization for Economic Co-operation and Development (OECD) and Group of Twenty (G20) to prevent tax-base erosion and profit shifting. Our policies and practices ensure that PMI pays taxes commensurate with our economic activities and substance in each country in which we operate.
PMI complies with local country transfer pricing legislation and the OECD’s transfer pricing guidelines, including the Base Erosion and Profit Shifting (BEPS) project, which entails the preparation of a Country-by-Country Report (CbCR). This report includes quantitative and qualitative data and contributes to a better understanding of our economic and tax responsibilities in each country where we operate.
We do not engage in aggressive tax planning, abuse tax havens, or have in place any contrived tax structures. We also do not operate “letterbox” companies.
Tax risk management strategy
PMI conducts all intercompany transactions on an arm’s-length basis in accordance with current OECD principles.
In line with the recommended best practices issued by the OECD within BEPS, PMI seeks to increase its tax certainty by entering into Advance Pricing Agreements (APAs). An APA is an agreement entered into between a taxpayer and the tax authorities of one (unilateral APA) or more (bilateral or multilateral APA) jurisdictions. It confirms the selection and application of the transfer pricing method used to set up the prices in intercompany transactions.
PMI currently has a portfolio of at least 20 active APAs, both unilateral and bilateral. These APAs are a key part of our strategy to obtain tax certainty.
Apart from APAs, PMI uses other mechanisms to manage its tax positions. When relevant and feasible, we have upfront conversations with tax authorities in the countries where we operate. In certain instances, we obtain tax rulings to provide a higher level of certainty for both PMI and the tax authorities. Such rulings are not the only means of securing transparency and certainty, as we also have joined monitoring programs with tax authorities in several countries, with the aim of establishing PMI as a low-risk taxpayer in the relevant jurisdiction. These programs promote ongoing and transparent relations between taxpayers and tax authorities.
Where available, PMI adheres to and promotes participation in cooperative compliance
programs in countries in which PMI operates. For example, PMI participates in the “Adempimento Collaborativo” program in Italy and the "Program Wspoldzialania" in Poland. Such programs establish a relationship of trust between the tax
authorities and taxpayer and increase certainty on relevant tax issues.
Relationships with tax authorities
As is the case with other multinational companies, PMI’s tax returns are regularly audited by tax authorities. PMI responds to tax audit requests in a timely manner while ensuring full transparency regarding our business operations. Our working relationships with governments and fiscal authorities are conducted in a professional and collaborative manner.