Parallel tobacco markets: the KPMG report serving the industry narrative

The publication of the report KPMG 2025 dedicated to the illicit consumption of cigarettes in Europe comes in a context marked by European discussions on tobacco taxation[1]-[2], the revision of the Tobacco Products Directive[3] and the strengthening of anti-smoking policies. According to the firm commissioned by the tobacco company Philip Morris, 52.2 billion cigarettes consumed in Europe in 2025 will be sold on the "parallel market," representing approximately 10% of total consumption across the 38 markets studied. Widely disseminated by the tobacco industry and certain economic actors, this report presents France as the main European market for illicit cigarettes and suggests that ambitious tax policies would lead to an increase in the illicit trade.[4].

Commissioned by Philip Morris Products SA, the report is based on a methodology that is regularly challenged in the scientific literature.[5]-[6]-[7] and by several public bodies. Above all, its conclusions appear inconsistent with the data from studies conducted by the French authorities.[8]-[9]-[10]-[11], who estimate the parallel markets in France to be at a significantly lower level and mostly composed of cross-border purchases which may be legal.

Publicly available data also shows that, despite the persistence of parallel markets, the volumes involved have been decreasing sharply for several years in a context of structural decline in smoking. This reality leads us to place the debate in a broader perspective: that of tax differentials within the European Union, the supply strategies of tobacco manufacturers, and the shortcomings of the current European system for monitoring and tracing tobacco products.

A report funded by Philip Morris based on a disputed methodology

The KPMG 2025 report is part of a series of annual studies commissioned by Philip Morris Products SA for almost twenty years.[12]. From the very first pages of the document, KPMG specifies that the study was conducted under a private contract with Philip Morris and that the scope of the work, the sources used, and the methodological limitations were defined with the client. The firm also indicates that it did not independently verify the reliability of the information used and assumed the accuracy of the data from public or third-party sources.

Although it is regularly presented as a benchmark study on the illicit tobacco trade in Europe, this report is in reality a work funded and produced in collaboration with one of the world's leading tobacco manufacturers, whose economic interests are directly affected by the issue of parallel markets and the debates surrounding the taxation and regulation of tobacco products.[13]. In France, the conclusions of this publication are the subject of a massive communication campaign every year. The tobacco industry and certain organizations representing tobacconists use this platform to denounce national tax policies and smoking reduction strategies implemented by public authorities.

The report relies primarily on empty pack surveys and data from tobacco manufacturers or agencies commissioned by them. This methodology, which remains particularly opaque, is the subject of recurring criticism in the scientific literature and among several public institutions. Empty pack surveys are a method for assessing illicit trade, but several conditions are not met in the case of the KPMG study. In particular, the collection areas are not at all representative, and a major bias is introduced by selecting tourist or border locations. Thus, the presence of a foreign pack in a public space does not, in itself, allow one to conclude that an illicit purchase has occurred. A pack could come from a foreign consumer visiting France, a French consumer traveling abroad, or someone who came to purchase tobacco products in compliance with the limits authorized by European regulations (cross-border purchase). The report combines categories of very different natures—legal cross-border purchases, duty-free purchases, smuggling, counterfeiting, and even "illicit whites"—contributing to producing particularly spectacular figures for "parallel markets." This approach tends to blur the distinction between legal behavior and organized criminal activities, thus inflating the phenomenon.

In general, the report highlights the particularly high and increasing proportion of counterfeit products. However, the tobacco manufacturing sector is quite small, and this overrepresentation of counterfeit products is primarily intended to portray the industry as a victim rather than a stakeholder in these markets. Manufacturers are indeed liable if the product is irregular and originates from their factories, given their obligations to control the supply chain.[14]. Therefore, they have a vested interest in presenting products sold outside the legal market as counterfeit. In practical terms, the identification of counterfeit products relies directly on analyses carried out by the tobacco manufacturers themselves. Thus, it is the major cigarette companies that determine whether packs bearing their brands are authentic or counterfeit, without any systematic, independent mechanism for public verification, which constitutes a major methodological conflict of interest.

The authors claim that France alone accounts for nearly half of the European parallel market, even though total cigarette consumption officially continues to decline across all 38 markets studied (-4.1% in 2025). This trend alone does not invalidate the report's conclusions. However, it underscores the need to interpret these estimates with caution and to carefully examine the methodological assumptions used to simultaneously explain the decline in overall consumption and the growing importance attributed to parallel markets.

In addition, there are statistical adjustments that the report does not sufficiently detail. KPMG applies corrections to the raw data from parcel collection surveys, notably to account for collection rates, geographic representativeness, and estimated consumption volumes, without making the parameters and assumptions used public or subjecting them to independent verification. These adjustments can have a significant impact on the final results, without their justification being established and verifiable by third parties.

These figures are particularly spectacular for the French market.

The KPMG report states that France alone accounts for 49.1% of the European illicit cigarette market. This particularly high figure significantly contributes to the perception of a French situation that is "out of control" and fuels the alarmist rhetoric disseminated annually by the tobacco industry and certain tobacconists' representatives, who continuously promote it to public decision-makers (particularly members of parliament) and the media.

However, such an estimate should be interpreted with caution. It stems directly from the methodological choices made by KPMG, particularly the aggregation of very different categories within the "parallel markets." It also appears to be at odds with the work carried out by the French public authorities.[15], which describe a more nuanced reality and are mainly related to legal cross-border purchases.

This highly alarmist presentation of the French case is not surprising given the strong tax policy adopted by the country a few years ago, which significantly contributed to reducing prevalence within its borders. France is thus specifically targeted in order to prevent the spread of this strategy of sharp increases to other countries and to discourage the continuation of such a strong tax policy. The communication objective pursued through this report is to establish the idea that public health policies, and in particular tobacco taxation, are directly responsible for an explosion in the illicit trade.[16]. However, publicly available data shows the opposite: a significant decrease in volumes consumed outside the network, in an overall context of declining smoking rates.

Estimates that are significantly higher than publicly available French data

The KPMG report estimates that 53.6% of cigarettes consumed in France originate from the "parallel market," of which 41% fall under the category of "counterfeit and contraband." According to the report, France is therefore the main European market for illicit cigarettes.

These results, however, appear very different from the estimates produced by French public bodies and studies conducted among smokers. The latest study, funded by the Directorate General of Customs and Indirect Taxes (DGDDI) and MILDECA, estimates the share of the parallel market at between 11% and 20% of national consumption, with an average of 17.7%.[17].

The work of Public Health France and the OFDT[18] reach comparable conclusions. According to their data, nearly 80% of French smokers reported buying their last pack from a tobacconist at the time of the survey, while purchases made outside the network were mostly legal cross-border purchases within the established limits or made abroad. Fewer than 1% of respondents reported buying their last pack on the street.

These estimates are difficult to reconcile with observed epidemiological trends.

The estimates put forward by KPMG also raise questions about their consistency with the epidemiological trends observed in France. The report indicates that total cigarette consumption in France (legal and illegal combined) is projected to fall from 51.53 billion cigarettes in 2021 to 49.54 billion in 2025, representing a relatively limited decrease of approximately 3.9 billion over the period.

At the same time, public health data shows a particularly marked decline in smoking in France in recent years. (Public Health France, 2025; OECD, 2023; WHO, 2023). According to some estimates, daily smoking prevalence decreased by approximately 38.8% over the period. Taken together, these changes would mechanically imply an estimated increase of approximately 57% in individual consumption by the remaining smokers in order to maintain such high overall volumes.

Such a development contradicts the data and trends observed for several years regarding the reduction of smoking, the decrease in volumes consumed and the transformation of purchasing behavior in the various surveys.

Parallel markets in France: a primarily cross-border phenomenon in a context of declining volumes

The available public research consistently shows that parallel markets in France are primarily linked to cross-border purchases. This situation is mainly explained by tax disparities within the European Union, particularly with certain border countries such as Luxembourg, Germany, and Spain, and by the oversupply of these markets by tobacco manufacturers in order to sell to cross-border smokers. This situation accounts for the majority of purchases made outside the national network of tobacconists, without necessarily constituting illicit trade on the part of consumers. These purchases are, however, made possible by the deliberate strategy implemented by manufacturers.[19].

This situation at least partially undermines the effectiveness of health policies involving increased taxes in border regions. According to the CNCT (National Committee Against Tobacco), purchases made outside the tobacconist network can represent up to 30% of consumption in some border departments. This reality thus contributes to reinforcing certain territorial health inequalities: border regions have a smoking prevalence that is on average 2.5 points higher than that of non-border regions, and a higher incidence of associated illnesses and mortality attributable to tobacco.

However, contrary to the particularly alarmist rhetoric regularly put forth by the tobacco industry and certain economic actors, public data shows a significant decrease in the volumes involved over recent years. Based on public data, the CNCT indicates that parallel markets were estimated at 21,772 tonnes in 2012, and fell to 8,081 tonnes in 2023, representing a decrease of nearly 63%.[20]. This relative stability in value since the beginning of the 2000s, documented by the OFDT as early as 2005[21] (cross-border purchases estimated between 21.3 % and 22.7 % of sales at tobacconists) and 2012[22] (off-network share of approximately 20 %), contradicts the idea of an explosion attributable to recent tax increases.

This trend is part of a broader decline in smoking rates in France. The decrease in smoking prevalence observed over several years, combined with prevention policies, price increases, and stricter regulations, has led to a reduction in overall consumption, including outside of regulated channels. While parallel markets remain a significant health, economic, and fiscal challenge, their evolution does not suggest that anti-smoking policies have failed. On the contrary, it appears that the very success of these public policies contributes to reducing the problem of parallel markets.

A European reading biased against public health fiscal policies

Beyond the specific case of France, the KPMG report constructs a narrative that directly links increased tobacco taxes to a rise in the illicit trade. The document repeatedly emphasizes that countries with the highest prices are also those with the highest levels of illicit consumption.[23], The report regularly cites France, Ireland, the United Kingdom, and more recently Belgium and the Netherlands, which have all adopted stricter regulations in recent years. According to the report, cigarettes falling under the category of "counterfeit and contraband" represent 41% of consumption in France, 35% in Ireland, and 32% in the United Kingdom—a presentation that tends to establish an almost automatic link between high taxation and the growth of the illicit trade.

The report acknowledges that several European states are simply transit countries for illicit trade, which is the case for France, but without reducing its weight at the national level.

The essential role of tobacco manufacturers in the parallel markets

The report largely obscures the direct responsibility of tobacco manufacturers in these parallel markets. With regard to France in particular, the scale of cross-border purchases is made possible primarily by the fact that manufacturers oversupply border markets, such as Luxembourg, knowing that their products can be sold to French smokers living near the border. However, the unique identification codes affixed by tobacco companies to their products during manufacturing must indicate the destination market, and the number issued should correspond to the prevalence of that market. Thus, for several decades, manufacturers have argued that increased taxation would automatically encourage smuggling in order to conceal their own responsibility in these parallel markets. The lack of published reports on data from the tracking and tracing system further contributes to this opacity of practices. Such publication would indeed document the extent to which some border retailers are supplied with tobacco that has no connection whatsoever to the local market in question.

This omission of responsibility on the part of tobacco manufacturers appears all the more problematic given that several institutional and journalistic investigations have documented situations of deliberate oversupply in various European countries. According to data from the KPMG report itself, 88% of the cigarettes sold in Luxembourg are not consumed by Luxembourg residents, representing a volume of 5.36 billion cigarettes for an estimated domestic consumption of 0.64 billion. These excess volumes can only result from commercial decisions made knowingly by the manufacturers.[24].

In addition to the practice of oversupplying border markets, several institutional and journalistic investigations document cases of manufacturers' direct involvement in illicit supply chains. In 2023, British American Tobacco agreed to pay $629 million to settle US lawsuits related to illicit tobacco sales to North Korea.[25]. Investigations conducted by the OCCRP[26] Studies in West Africa have highlighted the role of SMEs and BATs in oversupplying high-risk markets, contributing to the financing of armed militias and regional destabilization.[27]. These elements remind us that, far from being a simple victim of illicit trade, the tobacco industry is sometimes a direct actor in it.

Yet the manufacturers' discursive strategy benefits from a powerful media platform: every year, the highest figures in the report are widely disseminated, often without methodological context or comparison with data from independent public bodies. This asymmetry contributes to marginalizing analyses that highlight the structural issues linked to manufacturers' supply strategies and the limitations of the current European monitoring and traceability system. However, it is precisely this last point that constitutes the central issue: the lack of legal, economic, and, above all, organizational independence (choice of service providers, auditors) from the tobacco industry.[28]. Documenting this direct responsibility in supplying parallel markets is one of the strongest arguments for justifying why tobacco manufacturers cannot be entrusted, even partially, with the management or financing of tobacco product tracking and tracing systems.

An approach focused on tax and security losses

The KPMG report emphasizes the economic consequences of illicit trade, estimating tax losses at nearly €19.4 billion for European states in 2025, including several billion euros for France. These estimates are directly derived from the parallel market volumes cited in the report itself; they are therefore as questionable as the data on which they are based.

This emphasis on tax losses helps to frame the debate primarily from a budgetary and security perspective, which tends to obscure the health benefits associated with tobacco control policies. Public data clearly shows that the decline in tobacco tax revenue reflects above all a genuine decrease in consumption, which is precisely the objective of public health policies, and not a massive shift towards illicit markets.

Fully implement the provisions of the protocol on combating illicit trade

The KPMG report presents parallel markets as resulting exclusively from strong tax policies and does not address the problem at the supply level. Yet this approach is considered essential in the fight against parallel markets. This is notably the purpose of the WHO Protocol to Eliminate Illicit Trade in Tobacco Products, which entered into force in 2018.[29]. This treaty has been ratified to date by 69 Parties, including France, the European Union, and other Member States. It provides for several measures designed to directly address the structural causes of the problem. In particular, the treaty emphasizes the need to control the entire tobacco supply chain, including a monitoring and traceability system that is completely independent of the tobacco industry, and to limit the volumes placed on each market in relation to the domestic demand of the countries concerned.[30].

In this context, several public health organizations, including the CNCT and Smoke Free Partnership (SFP), are calling for a revision of the current European system and its strengthening by incorporating this provision. These organizations emphasize, in particular, the shortcomings of the current system and its non-compliance with the Protocol to Combat the Illicit Market in Tobacco Products.[31].

The CNCT and SFP are therefore advocating for a revision of Article 15 of the European Tobacco Products Directive to guarantee a traceability system that is fully compliant with the requirements of the WHO Protocol and strictly independent. The two organizations also support the implementation of quota mechanisms for supply volumes per country, in accordance with Article 7 of the Protocol, to limit the oversupply situations observed in some Member States.

This approach aims to place the issue of parallel markets in a structural, European or even international perspective, focused on controlling the flows, supplies and responsibilities of the various actors in the tobacco chain, rather than on questioning public health policies based on reducing smoking.

AE

[1] Revision of the Tobacco Taxation Directive, European Commission

[2] Revision of the Tobacco Taxation Directive In “A new plan for Europe's sustainable prosperity and competitiveness”

[3] Revision of the Tobacco Products Directive, European Commission

[4] Press release, The parallel market, France's leading tobacconist, PMF, published on June 3, 2026

[5] Gilmore AB, Rowell A, Gallus S, et al Towards a greater understanding of the illicit tobacco trade in Europe: a review of the PMI funded 'Project Star' report Tobacco Control 2014;23:e51-e61.

[6] Cadahia P, Golpe A, Martín-Álvarez JM, Asensio E. Measuring anomalies in cigarette sales using official data from Spanish provinces: Are the anomalies detected by the Empty Pack Surveys (EPSs) used by Transnational Tobacco Companies (TTCs) the only anomalies?. Tobacco Induced Diseases. 2021;19(December):98. doi:10.18332/tid/143321.

[7] World Bank Group. (2019). Confronting Illicit Tobacco Trade: A Global Review of Country Experiences. Washington, DC: World Bank Group. Available at: World Bank report

[8] Public Health France, OFDT, Tobacco Supply to Smokers in France, 2014-2022. March 2024. https://www.ofdt.fr/sites/ofdt/files/2024-05/approvisionnement_tabac_2022.pdf

[9] INSEE, Foreign supplies represent at least 9.5% of tobacco sales in France. February 2024. https://www.insee.fr/fr/statistiques/fichier/version-html/7764897/ia94.pdf

[10] OFDT, Tobacco supply to smokers in France: 2014-2022. March 2024.

https://www.ofdt.fr/sites/ofdt/files/2024-05/approvisionnement_tabac_2022.pdf

[11] National Assembly. Information report on the evolution of tobacco consumption and the revenue from tobacco product taxes during lockdown, and the lessons learned. 2021. https://www.assemblee-nationale.fr/dyn/15/rapports/cion_fin/l15b4498_rapportinformation

[12] Gilmore, A.B., Rowell, A., Gallus, S., Lugo, A., Joossens, L. & Sims, M. (2014). Towards a greater understanding of the illicit tobacco trade in Europe: a review of the PMI-funded 'Project Star' report. Tobacco Control, 23(e1), e51-e61.

[13] Ross, H., Gallagher, A. & Stoklosa, M. (2016). Assessing the validity of tobacco industry-funded research on illicit tobacco trade. Tobacco Control.

[14] World Bank Group. (2019). Confronting Illicit Tobacco Trade: A Global Review of Country Experiences. Washington DC.

[15] TAFE 2025 study: 17.7% of tobacco products escape national taxation. October 31, 2025.

https://www.douane.gouv.fr/actualites/etude-tafe-2025-177-du-tabac-echappe-la-fiscalite-nationale

[16] Smith KE, Savell E, Gilmore AB. (2011). What is known about tobacco industry efforts to influence tobacco tax? A systematic review. Tobacco Control.

[17] TAFE 2025 study: 17.7% of tobacco products escape national taxation. October 31, 2025.

https://www.douane.gouv.fr/actualites/etude-tafe-2025-177-du-tabac-echappe-la-fiscalite-nationale

[18] Public Health France, OFDT, Tobacco Supply to Smokers in France, 2014-2022. March 2024. https://www.ofdt.fr/sites/ofdt/files/2024-05/approvisionnement_tabac_2022.pdf

[19] Joossens L, Raw MProgress in combating cigarette smuggling: controlling the supply chain Tobacco Control 2008;17:399-404.

[20] François Topart, TOBACCO & PARALLEL MARKETS: A critical analysis of the data and influence of the tobacco industry in the public debate, CNCT, 2025

[21] OFDT. Estimate of cross-border cigarette purchases, 2004-2007. https://bdoc.ofdt.fr/doc_num.php?explnum_id=9069

[22] OFDT. Monitoring the illicit tobacco market in France. June 2012.

https://www.ofdt.fr/sites/ofdt/files/2023-11/field_media_document-4644-doc_num--explnum_id-12996-.pdf

[23] Smith KE, Savell E, Gilmore AB What is known about tobacco industry efforts to influence tobacco tax? A systematic review of empirical studies Tobacco Control 2013;22:e1.

[24] François Topart, TOBACCO & PARALLEL MARKETS: A critical analysis of the data and influence of the tobacco industry in the public debate, CNCT, 2025

[25] US Department of Justice. (2023). British American Tobacco Pleads Guilty and Agrees to Pay More Than $629 Million for Bank Fraud and Sanctions Violations Related to North Korea.https://www.justice.gov/opa/pr/british-american-tobacco-pleads-guilty-and-agrees-pay-more-629-million-bank-fraud-and

[26] OCCRP – Big Tobacco and the Illicit Tobacco Trade in West Africa https://www.occrp.org/en/big-tobacco

[27] Bureau of Investigative Journalism https://www.thebureauinvestigates.com/stories/2021-07-06/big-tobacco-smuggling-west-africa

[28] Smoke Free Partnership. (2023). Recommendations on the revision of the EU Tobacco Track and Trace System.

[29] WHO FCTC Secretariat. (2018). Protocol to Eliminate Illicit Trade in Tobacco Products.

[30] WHO Framework Convention on Tobacco Control. Guidelines for implementation of Article 5.3.

[31] Stopping Tobacco Organizations and Products (STOP). (2020). Exposing the Tobacco Industry's Influence over EU Track and Trace.