Coca-Cola is fighting the IRS in appellate court with $20 billion at stake
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Coca-Cola and the IRS is headed to court for $20 billion amid a years-long dispute over the beverage company’s reporting of profits made in the US and overseas.
The soda giant is taking its case to federal court in Miami as it seeks to settle a tax lien stemming from the way Coca-Cola and its foreign subsidiaries understated profits from 2007 to 2009 using an accounting practice known as transfer pricing.
The case centered on an agreement between the company and the The IRS since 1996 about how the company will report foreign profits, as Coca-Cola’s US company licenses its intellectual property – from recipes, product names and trademarks – to foreign subsidiaries that produce concentrates used to make its drinks in foreign markets.
Coca-Cola says it has structured its operations to comply with the 1996 agreement using a “10-50-50” formula that allows foreign suppliers to keep 10% of sales, with the US parent company and the foreign company splitting the remaining profits.
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Coca-Cola says the IRS reneged on a settlement it reached with the company in 1996. (Rachel Wolf/Fox News Digital)
“Rather than seeking to evade its tax obligations, Coca-Cola has carefully planned its operations to comply with the IRS’s repeatedly approved approach,” the company said in a court filing. The Wall Street Journal.
The outlet reported that the IRS calculates that the 1996 agreement went into effect in 1987 but did not apply in future years, and that it only provides protection from penalties for the use of the 10-50-50 method against securities.
The IRS said in its own filing that “the combination of two non-promises does not constitute a promise, as Coca-Cola wishes.”
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| A ticker | Security | Finally | Change | change % |
|---|---|---|---|---|
| KO | The company COCA-COLA CO. | 79.55 | +0.16 |
+0.20% |
While the company tax documents from 2007 to 2009 was the focus of the first IRS lawsuit, Coca-Cola continued to use the accounting method as the legal dispute played out.
The IRS defeated Coca-Cola with a Tax Court ruling in 2020, which resulted in the company paying $6 billion in taxes and interest as a judge ruled that the parent company’s agreements with foreign subsidiaries were improperly structured to keep profits overseas in low-tax jurisdictions.
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The IRS says Coca-Cola’s international accounting procedures were flawed and unauthorized. (Kayla Bartkowski/Getty Images)
That money could return to Coca-Cola with interest if the company is successful in its appeal, although it could face a huge tax liability if it loses in court due to the continued use of the tool.
Coca-Cola will owe an estimated $14 billion in taxes and interest for tax years 2010 to 2025, bringing the total to $20 billion if it loses its appeal against the IRS.
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The Journal noted that the $14 billion debt could cause Coca-Cola to borrow to pay the IRS, as the debt exceeds its cash holdings — although analysts say the company insists it has the cash it needs to pay off the debt again. keep its shares to investors.
FOX Business has reached out to Coca-Cola and the IRS for comment.
