Australia: Legal & Regulatory Impact on Multinational Companies

This report provides an overview of the legal and regulatory frameworks affecting multinational corporations (MNCs) operating in Australia, using Philip Morris International as a case study. It identifies key legislative requirements such as corporate tax, goods and services tax, excise duties, and t...Read More

Legal Aspects of
International Business
and Enterprise
2018

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QUESTION 1
PHILIP MORRIS INTERNATIONAL
Philip Morris International is an America based multinational enterprise which offers in the
tobacco industry. The company is involved in the process of manufacturing cigarette and
tobacco products which are sold in more than 180 nations. One of the best-selling products
of the enterprise includes Marlboro cigarette. The corporation was founded in 1847, and its
global headquarters is situated in New York City, United States (PMI, 2018a). The enterprise
is highly controversial since it offers tobacco-related products which cause serious health
issues to customers such as cancer. The enterprise faces a number of litigations regarding
the products which it offered to its customers, and it is subject to restrictive legislation from
governments across the globe. The enterprise has hired a diverse workforce of more than
81 thousand employees who operate in different locations in the world (PMI, 2018b).
Furthermore, in Australia, the enterprise has hired more than 500 employees who work
across the nation to handle the operations of the enterprise (PMI, 2018c).
QUESTION 2
LEGISLATIVE REGULATORY FRAMEWORK IN AUSTRALIA WHICH AFFECTS
THE BUSINESS OF MNCS
The Australian government is strict regarding the legislative framework in the country
because it focuses on ensuring the interest of the customers along with supporting the
economic growth of the nation. The Australian government has set high standards which
corporations have to comply with in order to ensure that their products are safe to consume
by Australian citizens. In case of Philip Morris International, the company operates in a
tobacco industry which is a controversial field since the products of the enterprise result in
causing serious health injuries to consumers. Therefore, the regulatory framework which
Philip Morris International has to comply with is comparatively stricter than compared to
corporations operating in other fields. Since the 1950s, the Australian government has
progressively involved in enacting the legislation in the country in order to reduce the

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devastating impact which customers have to face relating to their health while using
tobacco products and smoking (Liberman, 2013). Due to media pressure, health authorities
and general awareness between people, the pressure has been high on the Australian
government to implement tougher tobacco control laws in the nation. For example, while
offering tobacco products in Australia, corporations such as Philip Morris International have
to ensure that they pack their products with printed warning labels (ACOSH, 2018).
The government imposed these regulations in 2006 based on which the tobacco
corporations have to add new warning signs on their products which covers an expanded
range of health effects which customers might face while using such products. In case of
cigarette packs, the companies have to ensure that the 30 percent of the front area and 90
percent of the back area of the pack has graphic appearing on the packet (Jarman, 2013).
The goal of these warning signs is to increase awareness among people regarding the
detrimental effect of smoking or tobacco. The government issued the updated and
expanded warning signs which tobacco corporations have to put on their products as given
by the Competition and Consumer (Tobacco) Information Standard 2011. Based on these
new regulations, the corporations have to cover 75 percent of the front of the package with
graphic presentation of the negative effect of smoking and 90 percent of the back of the
package with the graphic content (Tobacco Control Laws, 2017). Furthermore, Philip Morris
International also has to comply with the taxation regulations in Australia based on which it
has to pay tax as per the corporate rate.
The current tax rate which is implemented by the government on the companies operating
in Australia is 30 percent (ABC, 2018). The tax payment assists in supporting the economy of
the nation, and it assists the enterprises in effectively handling their actions in Australia.
Moreover, the multinational corporations operating in Australia have to pay Goods and
Services Tax while offering products or services to the company. This tax is levied on the
products or services which multinational companies’ offers to their customers while
managing their operations in Australia. Philip Morris International has to pay the tax on the
income which is generated by the company from its operations situated in Australia (Yong et
al., 2014). Furthermore, Philip Morris International is mainly operated in the United States
and its products are subject for excise in Australia. Since the government is strict regarding
reducing the use of tobacco in the country, the excise imposed on tobacco was increased by

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25 percent by the government of Australia in April 2010. Moreover, the excise and excise-
equivalent customs duty which imposed on the products offered by Philip Morris
International in Australia were increased by 12.5 percent in December 2013.
Furthermore, the government again increased this rate by 12.5 percent in September 2017
(ATO, 2018). The Corporations Act 2001 (Cth) is another key legislation in Australia which
provides provisions regarding enterprises operating in Australia. The act provides guidelines
regarding the incorporations of companies in Australia and the rules which they have to
comply with while handling their operations. Based on this act, the corporation has to
maintain a transparent framework regarding the impact of the company’s products on the
health of customers. Furthermore, the board of directors of the enterprise has to comply
with the guidelines given in the Corporations Act while taking business decisions regarding
the company’s operations situated in Australia. The general duties are given under section
180, 181, 182 and 183 based on which the director has to ensure that they focus on the
interest of the stakeholders of the company rather than their personal benefits (OBP, 2018).
Philip Morris International also has to comply with the guidelines given under the
Competition and Consumer Act 2010 to ensure that the products offered by the corporation
are safe to consume.
Since it offers tobacco related products to its customers, the company has to ensure that it
did not cause harm to its customers. The Australian Consumer Law provides that the
corporation has to ensure that its products are safe for consumers to use. Moreover, there
are a number of state and territorial laws relating to consumer safety which Philip Morris
International has to comply with while offering its products to customers. Since tobacco and
cigarette are dangerous for customers’ health, Philip Morris International has to deal with
stricter legal regulations regarding the safety consumers (Mitchell and Studdert, 2012). The
enterprise also has to comply with the Fair Work Act 1992 which provides guidelines
regarding the safety of employees which operates in the factories of the company. Based on
this regulation, the company has to ensure the safety of its employees. Thus, Philip Morris
International has to comply with these regulations while handling its operations in Australia.
QUESTION 3

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TREATIES, CONVENTIONS OR AGREEMENTS WHICH AFFECT THE PRODUCTS
AND SERVICES OFFERED BY MNCS IN AUSTRALIA
The treaties and agreements formed between the nations create new business
opportunities for multinational corporations which offer their products or services in such
nations. In many cases, these treaties create new challenges for enterprise as well while
there are handling their operations in the international market. A good example is the
bilateral trade agreement formed between Australia and New Zealand. A suit was filed
between the Australian government and Philip Morris International regarding displaying of
graphic content on the cigarette packages offered by the company. Australia has involved in
the healthcare framework issued by the World Health Organisation (Hammond et al., 2012).
The Department of Health in Australia is responsible for imposing provisions given by under
the WHO Framework Convention on Tobacco Control. These provisions were contradicting
with the regulations of the bilateral trade agreement which formed between Australia and
Hong Kong. However, this legal battle is won by the Australian government because the
court ordered Philip Morris International to put graphic health warning signs on the packing
of the products offered by the enterprise. The suit was filed by Philip Morris International by
arguing that the government has breached the foreign investment provisions of Australia
which are given in Australia’s Investment Promotion and Protection Agreement which is
signed by the government with Hong Kong (Hurst, 2015).
Another key treaty which affects the products and services offered by Philip Morris
International in Australia is the treaty signed by the government with the United States. The
treaty is focused on eliminating double tax policies in order to avoid corporations from
paying double tax on the income which they generate while managing their operations in
these countries (Barthel and Neumayer, 2012). Based on this treat, Philip Morris
International did not have to pay double tax on the income which it generates from its
operations situated in Australia. Moreover, the trade agreement formed between the two
nations also assists the company in expanding its operations in both nations. Since the
enterprise operations in the tobacco industry, the company has to ensure that it has to
maintain a high level of standard regarding the security of the products offered by the firm.
The goal of this treaty is to increase the trading relationship between both nations which

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assist in increasing business opportunities for Philip Morris International as well. The
organisation has to comply with the legal standard issued by this treaty based on which it is
easier for the enterprise to expand their operations in both nations. Similarly, the free trade
agreement formed between Australia and New Zealand also resulted in creating new
business opportunities and threats for the company.
For example, ASEAN Australia New Zealand FTA (AANZFTA) is a treaty which is formed
between the two nations in order to promote trading practices between the countries. The
goal of this treaty is to increase trading practices between both nations by encouraging
small as well as multinational companies to expand their operations in both markets (Lewis,
2015). However, Philip Morris International operates in the tobacco industry due to which it
has to comply with a strict legal framework while expanding its operations in different fields.
The government implements a wide range of legal regulations on Philip Morris International
regarding its operations to ensure that tobacco consumption did not increase in the nation.
Moreover, Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA)
is another treaty which is formed between the two nations. The goal of this treaty is to
increase the economic relationship between these countries in order to support their GDP
and overall growth (Radaelli, 2014). Based on this treaty, corporations can bypass various
laws which the governments impose in order to expand their operations in these countries
which result in increasing the number of customers which they target. Similarly, Philip
Morris International recently was involved in a legal dispute with the government in New
Zealand regarding the selling of their heated tobacco products.
The suit was filed based on the provisions given under the “Smoke-Free Environment Act”
based on which the government has imposed a ban on the tobacco products which are for
chewing or any other oral use (Reuters, 2018). The lawsuit was won by Philip Morris
International based on which the government has to remove the restrictions on its
products, and the company is able to sell its products in the country. China is a major
market for Philip Morris International because there are a large number of customers in the
industry. China Australia Free Trade Agreement (ChAFTA) is a treaty which is signed
between both nations with an objective to promote trade practices between the countries.
The treaty assists Philip Morris International in expanding its operations in both markets
which is crucial for its success since it results in expanding its market share. Based on this

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treaty, the enterprise able to avoid various taxes and fees relating to the foreign operations
and easily expand its operations in the overseas market (Baykitch and Sladojevic, 2015).
Another treaty signed between the nations assist Philip Morris International to avoiding
paying double tax paid by the company to the government of both nations. It creates new
business opportunities for the enterprise since it can use the money saved on the taxes to
invest in the operations of the enterprise.

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REFERENCES
ABC. (2018) Corporate tax cuts: What are the key issues in the debate?. [online] Available
from: http://www.abc.net.au/news/2018-03-29/corporate-tax-cuts-explained/9600004
[Accessed on 29th August 2018].
ACOSH. (2018) Australian tobacco control legislation. [online] Available from:
https://www.acosh.org/law-policy/australian-tobacco-control-legislation/ [Accessed on 29th
August 2018].
ATO. (2018) Excise rates for tobacco. [online] Available from:
https://www.ato.gov.au/Business/Excise-and-excise-equivalent-goods/Tobacco-excise/
Excise-rates-for-tobacco/ [Accessed on 29th August 2018].
Barthel, F. and Neumayer, E. (2012) Competing for scarce foreign capital: Spatial
dependence in the diffusion of double taxation treaties. International Studies
Quarterly, 56(4), pp.645-660.
Baykitch, A. and Sladojevic, A. (2015) Free trade agreements and arbitration: Understanding
investor-state dispute settlements. LSJ: Law Society of NSW Journal, (14), p.74.
Hammond, D., Wakefield, M., Durkin, S. and Brennan, E. (2012) Tobacco packaging and mass
media campaigns: research needs for Articles 11 and 12 of the WHO Framework Convention
on Tobacco Control. Nicotine & Tobacco Research, 15(4), pp.817-831.
Hurst, D. (2015) Australia wins international legal battle with Philip Morris over plain
packaging. [online] Available from:
https://www.theguardian.com/australia-news/2015/dec/18/australia-wins-international-
legal-battle-with-philip-morris-over-plain-packaging [Accessed on 29th August 2018].
Jarman, H. (2013) Attack on Australia: Tobacco industry challenges to plain
packaging. Journal of public health policy, 34(3), pp.375-387.
Lewis, M.K. (2015) The ASEAN-Australia-New Zealand FTA (AANZFTA). Bilateral and Regional
Trade Agreements, 2nd edn. Cambridge University Press, Cambridge, pp.114-132.

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Liberman, J. (2013) Plainly constitutional: the upholding of plain tobacco packaging by the
High Court of Australia. American Journal of Law & Medicine, 39(2-3), pp.361-381.
Mitchell, A.D. and Studdert, D.M. (2012) Plain packaging of tobacco products in Australia: a
novel regulation faces legal challenge. Jama, 307(3), pp.261-262.
OBP. (2018) A guide to director’s duties. [online] Available from:
http://obp.com.au/director-duties/ [Accessed on 29th August 2018].
PMI. (2018a) How can we help you?. [online] Available from: https://www.pmi.com/contact-
us [Accessed on 29th August 2018].
PMI. (2018b) Who we are. [online] Available from: https://www.pmi.com/who-we-are
[Accessed on 29th August 2018].
PMI. (2018c) Australia. [online] Available from: https://www.pmi.com/markets/australia/en
[Accessed on 29th August 2018].
Radaelli, C.M. (2014) Majone’s Cathedral. Journal of Comparative Policy Analysis: Research
and Practice, 16(1), pp.22-27.
Reuters. (2018) New Zealand court gives Philip Morris nod to sell heated tobacco product.
[online] Available from: https://www.reuters.com/article/us-newzealand-pmi/new-zealand-
court-gives-philip-morris-nod-to-sell-heated-tobacco-product-idUSKBN1H333X [Accessed on
29th August 2018].
Tobacco Control Laws. (2017) Legislation by country Australia. [online] Available from:
https://www.tobaccocontrollaws.org/legislation/country/australia/summary [Accessed on
29th August 2018].
Yong, H.H., Borland, R., Balmford, J., McNeill, A., Hitchman, S., Driezen, P., Thompson, M.E.,
Fong, G.T. and Cummings, K.M. (2014) Trends in e-cigarette awareness, trial, and use under
the different regulatory environments of Australia and the United Kingdom. Nicotine &
Tobacco Research, 17(10), pp.1203-1211.