US Charges Cigar Importer With Illegally Avoiding Federal Excise Tax
Florida-based importer Siboney Corporation violated the law by fraudulently avoiding paying Federal Excise Tax (FET) on 32 entries of large cigars, the U.S. argued in a July 12 complaint at the Court of International Trade. DOJ alleged that Siboney improperly calculated its amount of FET owed on the entries based on the sales price from the Nicaraguan exporter plus a 5% markup to a "fictitious" company, Blue Mountain Cigars, and an affiliated wholesaler, GAMATTSA (United States v. Siboney Corporation, CIT #22-00204).
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The Treasury Department's Alcohol and Tobacco Tax and Trade Bureau assesses the FET rate for large cigars at 52.75% of the price for which they are sold but not more than 40.26 cents per cigar, and considers that the "price for which sold" is based on the sale from an importer to a domestic purchaser in an arm's length transactions. If the good is not sold in an arm's length transaction at less than fair market price, then the tax shall be computed on the price for which such articles are sold in the ordinary course of trade, the regulations say. TTB clarified that the sale price is the one for which the products are sold by a domestic manufacturer or importer to an unrelated purchaser and not the price the importer paid for the goods to a foreign manufacturer.
From 2013 to 2015, Siboney imported large cigars from Nicaragua, shipped from Montana Azul Cigars. TTB conducted an audit of the 32 entries at issue in the case, discovering that Siboney allegedly failed to properly calculate the FET on each entry. TTB said that Siboney calculated the FET using the sales price from Montana Azul plus a 5% markup charged by Siboney to Blue Mountain Cigars and GAMATTSA. The U.S. said in the complaint that Blue Mountain "has no independent legal existence," meaning it and Siboney "are one and the same."
Since Siboney and Blue Mountain are the same, they can't have an arm's length transaction, the U.S. argued. "Siboney violated the law and regulations addressing the proper calculation of FET by using Montana Azul’s price plus a nominal five percent markup as the price upon which to calculate the FET for cigars it claims were sold domestically to BMC," the complaint said. "Instead, FET should have been calculated using the prices of the large cigars sold by Siboney using the fictitious BMC name."
The U.S. also opposed the use of sales involving GAMATTSA for the sales price to calculate FET. Since many of Siboney's corporate officers served on GAMATTSA's corporate board and had ownership stakes in both companies, sales between Siboney and GAMATTSA cannot stand as arm's length transactions, the brief said. The U.S. leveled claims of negligence against Siboney for its actions, claiming that the U.S. was deprived of $215,969.79 in FET, of which $114,981.17 was unpaid.