Despite the fact that during the two years of the full-scale Ukrainian-Russian war, many Western companies have refused to do business in the aggressor country, not all of them have taken this step. For example, how Philip Morris, one of the largest tobacco manufacturers in the world, continues to operate in both Ukraine and Russia.
The Telegraph newspaper analyzed why Americans do not stop doing business in the country that caused the destruction of their tobacco business in Ukraine. It is worth noting that after the invasion of Ukraine by Russian troops in 2022, the company promised to leave the Russian market.
Launch of a new factory in Lviv to replace the one in Kharkiv
In 1994, Philip Morris acquired the Kharkiv Tobacco Factory and began production, which at its peak reached 20 billion cigarettes a year, a quarter of the Ukrainian tobacco market. However, after a Russian missile hit the factory in May 2022, production stopped. Philip Morris representatives said that despite minor production losses, due to the threat to personnel and the lack of a bomb shelter, they would move production to Lviv, where they had previously bought land from Mayor Andriy Sadovyi for very cheap.
The company announced investments of more than $30 million and the creation of 250 new jobs. Before the Russian invasion of Ukraine, the company’s branch employed 1,300 Ukrainians.
Philip Morris representatives claim that since 1994, they have invested about $700 million in the development of Ukraine, and in 2023 alone, they paid taxes worth more than UAH 30.3 billion, or just over $800 million. According to the YouControl analytical service, in 2022, Philip Morris Ukraine’s revenue amounted to UAH 5 billion 66 million ($157 million), while a year earlier it was UAH 11.4 billion ($422 million).
Despite the losses caused by the Russian aggression, Philip Morris has no plans to cease its operations in the aggressor country.
Philip Morris International will not lose 2.5 billion. dollars
The company has long considered the Russian market a priority, although the first tobacco factory in Russia was opened only in 2000, much later than in Ukraine. During its heyday, Philip Morris had three tobacco factories in Russia, but as of March 2024, only one remained. One of the factories was closed in February 2022, before the Russian aggression in Ukraine, when the company decided that this unit had become unprofitable. Nevertheless, the tobacco giant is gradually concentrating all production facilities in Russia under the management of Philip Morris Ijora, with sales in Philip Morris Sales and Marketing and management functions in Philip Morris International.
According to the National Anti-Corruption Agency of Ukraine (NACA), Philip Morris’ investments in Russia exceed $2 billion. According to the company’s own estimates, the value of their business in the occupying country is $2.5 billion. In addition, in 2022, the company tried to exit the Russian Federation and negotiated the sale of the business with three companies, but the deal was not reached due to the low price offered by the buyers. The Western business press believes that with such arguments Philip Morris will probably never leave Russia.
Regarding tax payments, the NACP notes that in 2022, Philip Morris’ production unit in Russia, Philip Morris Ijora, paid income tax of $136 million, and if we take into account other units, including Philip Morris International, the amount was $206 million.
However, the final amount that Philip Morris actually sponsors Russia during the war remains unknown. For example, Philip Morris Sales and Marketing, which sells cigarettes in the Russian market, paid income tax of 2 billion Russian rubles in 2022, which is about $34 million at the average exchange rate in 2022 (60 rubles to 1 dollar).
The same Philip Morris Ijora paid 605 million Russian rubles or $10 million in VAT to the Russian treasury in 2022, while Philip Morris Sales and Marketing transferred 1.15 billion Russian rubles or $190 million.
According to Philip Morris Ukraine, in 2023 the company paid UAH 30.3 billion, or approximately $850 million, to the Ukrainian budget at all levels. According to publicly available data, Philip Morris in Ukraine pays more taxes than in Russia, as Philip Morris Ijora, Philip Morris Sales and Marketing, and Philip Morris International pay approximately $400 million to the Russian budget.
However, the amount of taxes paid to the local budgets of the Russian Federation remains unknown, as well as the amount of excise tax paid by Philip Morris to the Russian treasury. In particular, the management of the company, the largest distributor of tobacco products, was served with a notice of suspicion of tax evasion in excess of UAH 1 billion. This is likely to be Tedis-Ukraine LLC, which originates from Russia and has ties to oligarch Igor Keosayan, known for his ties to the FSB and arms production.