An Italian judge Monday ordered the head of Philip Morris Cos.' European operations and 10 officials of an Italian company that Philip Morris does business with to stand trial on charges that they illegally evaded corporate taxes.
The judge said Walter Thoma, president of Philip Morris' European unit, based in Switzerland, and 10 executives and board members of Intertaba SpA, a cigarette company based in the northern Italian city of Bologna, are accused of illegally avoiding paying taxes totaling the equivalent of $5.8-million on revenue of $5.5-billion pocketed for cigarettes sold in Italy between 1987 and 1996.
Philip Morris denies any wrongdoing.
Raffaele Marino, the judge in the southern port city of Naples, said more serious charges of criminal association that prosecutors sought to bring against the officials had been dropped for lack of evidence. The trial is expected to begin in Naples in January. It is unclear what penalties the officials face if convicted.
The charges arise from investigations in recent months into whether Philip Morris failed to pay taxes on royalties it received for cigarettes that were produced for sale in Italy. In a statement, Marino said the court would seek to determine whether Philip Morris illegally claimed tax exemptions meant for foreign companies operating in Italy through Italian subsidiaries.
At the heart of the issue is whether Intertaba, which makes and distributes cigarettes and cigarette filters for Philip Morris, is an independent company or a de facto Philip Morris subsidiary.
Under Italian law, the sale of tobacco products is subject to a government monopoly controlled by the Finance Ministry, which also collects taxes.
Among the Intertaba officers ordered to stand trial are the company's president, Paolo Ferrari, two other company officers and seven of its board members.
In January, Philip Morris submitted a written statement to the Italian parliament's finance committee stating that charges that employees of Philip Morris or its affiliate companies were involved in tax evasion were groundless.
David Davies, the chief counsel for Philip Morris' European operations in Lausanne, Switzerland, said the company would "vigorously contest" the charges.
The parliamentary finance committee has been holding hearings on the functioning of the state tobacco monopoly after complaints by the European Commission and RJR Nabisco Inc.'s R.J. Reynolds Tobacco Co. unit about Philip Morris' share of the Italian market. Philip Morris, the world's largest tobacco company, distributes Marlboro, Merit and other brands in Italy, and controls roughly half of the Italian market.