Soft drink manufacturer Coca-Cola has been directed by a court to pay billions in back taxes to the Internal Revenue Service (IRS) following a ruling by the U.S. Tax Court. The court found deficiencies in income tax payments owed by Coca-Cola for the 2007–09 period, totaling around $2.7 billion, with interest bringing the total to approximately $6 billion. Coca-Cola plans to challenge the decision, claiming that the IRS and the Tax Court misinterpreted the regulations involved in the case.
Despite intending to appeal the ruling within 90 days, Coca-Cola will make the payment while pursuing the appeals process. The dispute arose from a notice issued by the IRS in 2015, seeking an additional $3.3 billion in income tax for 2007–09. The IRS reallocated over $9 billion in income from Coca-Cola’s accounts, leading to the tax liabilities. Coca-Cola argued that this reallocation violated a previously agreed-upon calculation methodology.
The issue was designated for litigation by the IRS, leaving Coca-Cola with no alternative but to seek resolution through the court. In 2020, the Tax Court ruled in favor of the IRS, and in November 2023, a second opinion also favored the tax agency. Coca-Cola remains confident in its appeal prospects regarding the 2020 and 2023 Tax Court opinions.
The IRS notice in 2015 revolved around transfer pricing, a practice involving the exchange of goods and services between different divisions of the same company to minimize tax burdens. Coca-Cola disclosed in a recent SEC filing that the IRS challenged the transfer pricing between its U.S. parent company and foreign affiliates. The IRS rejected the agreed-upon methodology for calculating taxes, leading to the reallocation of income and additional taxes.
Coca-Cola believes that the retroactive imposition of tax liability using a different methodology is unconstitutional and plans to seek a refund if successful in the appeal. The U.S. Tax Court’s decision coincides with the IRS’s initiative targeting transfer pricing practices of foreign companies with U.S. subsidiaries. The IRS aims to crack down on strategies that allow foreign firms to avoid paying an appropriate amount of U.S. profits, sending compliance alerts to around 150 subsidiaries of large foreign corporations. Please rephrase
Source link
