- March 16, 2017
- Posted by: Josiah Hincks Solicitors
- Category: Business Law Updates
Tobacco manufacturers will have to take a more proactive approach in discouraging cross-border smuggling of tobacco products after a tribunal’s ruling in an important test case concerning a £650,000 fine imposed on a multinational company.
One of the company’s subsidiaries produced a brand of hand-rolling tobacco that was largely sold into the Belgian market, where duty rates on hand-rolling tobacco were lower than those in Britain. HM Revenue and Customs (HMRC) were concerned that the brand had become a favourite for day-trippers who would travel across the channel and return with quantities of hand-rolling tobacco that were not for their personal use.
HMRC imposed a £650,000 financial penalty on the company under Section 7B(4) of the Tobacco Products Duty Act 1979. The company’s appeal against that penalty was the first time that the penal provision had been considered by the First-tier Tribunal (FTT) and the matter was viewed as a test case by both sides.
The FTT found that the company was aware of the risk that some of its supplies of the brand into Belgium were likely to be smuggled into Britain. However, after being informed of HMRC’s concerns, it had taken measures to track and trace supplies of the brand. The company had been somewhat over-optimistic in its estimates of legitimate demand for the brand, although not to the extent alleged by HMRC.
After the company was made aware of seizures of the brand at channel ports, it had been less than assiduous in fulfilling its proactive duty to investigate the matter. The FTT ruled that the penalty was excessive, reducing it to £100,000, but observed that the company should not derive undue satisfaction from that outcome.