Coca-Cola does well on supermarket shelves, but not so well in financial courts. The Atlanta-based soft drinks giant filed its annual report with the United States Securities and Exchange Commission (SEC) on Tuesday, revealing what’s at stake in a $14,000 million dispute it has with the IRS (around 13,100 million euros at the current exchange rate), according to the new estimate updated as of December 31, 2022.
US tax authorities questioned how Coca-Cola distributed profits among various subsidiaries. In their view, it shifted excess earnings to foreign jurisdictions to avoid higher U.S. taxes. The IRS challenged this tax arrangement, and a business administration court ruled against the company in November 2020.
At that time, the tax court reserved the decision on the effects of Brazilian legal restrictions on license payments by the licensee of Coca-Cola in Brazil until a similar case involving the conglomerate 3M had been clarified. This case has been settled for two weeks, so Coca-Cola is now awaiting a quick final decision on its own case.
The lawsuit initially covers the years 2007 to 2009, and Coca-Cola updated its assessment of what’s at stake in its recently released annual report. “The company currently estimates that the payment to be made at this time in connection with fiscal years 2007 through 2009 (…) is approximately $5.2 billion (including the payment up to the 31 date,” states the company, which its Expressed intention to appeal to the courts, although it would have to pay first.”Part or all of the amount would be refunded if the company won the appeal,” adds Coca-Cola.
But beyond that, what happened in 2007-2009 can be extrapolated to the following ones. Coca-Cola calculated the “potential impact” of applying these criteria, assuming they were upheld by the courts and the IRS decided to apply them to subsequent years. “This impact would include tax and interest accrued through December 31, 2022 for the disputed fiscal years 2007-2009 and subsequent fiscal years 2010-2022,” the company said. “The company estimates that the total potential liability for taxes and interest as of December 31, 2022 could be approximately $14,000 million,” the company adds, which anticipates that continued application of these tax criteria would increase the tax rate in the coming years. Group liquidity by around 3.5%. According to its annual report, the company had an effective tax rate of 18.1% in 2022, down three points from the previous year.
Coca-Cola claims it will most likely win the case in court, so it hasn’t taken any precautions to deal with that. What if he loses? “We are confident that with our ability to generate cash flows from operations and our ability to obtain credit at reasonable interest rates, we can manage the range of possible outcomes upon the eventual resolution of the matter,” the company said.
8.2 million for Manuel Arroyo
The company does not show any Management Board remuneration in its annual report, but refers to the documentation of the next general meeting. However, parallel to the registration of the report and days after the release of the annual results, several executives announced receipt of their awards in shares received under the company’s compensation plans.
Manuel Arroyo, pictured in 2017 when he was CEO of Coca Cola Iberia.
Among these executives is Manuel Arroyo, commercial director of the American group. According to the filing with US regulators, last week Arroyo received 101,428 Coca-Cola shares issued under the 2020-2022 stock compensation program and an additional 36,290 shares included in the incentive plan used for exiting introduced during the pandemic (called: Emerge Stronger, Come Out Stronger). Those 137,718 shares were valued at approximately $8.2 million at the time of delivery to the executive. Of course, Arroyo immediately sold 58,875 stocks valued at about $3.5 million to deal with the tax consequences of those stock payments.
In 2021, the latest figures available, the total compensation of the Spanish manager at the helm of Coca-Cola was around $7.5 million. The calculation of the shares for the purpose of calculating the annual fee and their actual delivery do not have to coincide. That means even though those shares have now been delivered, they’ll likely partially count towards 2022 compensation.
Quincey James has also recently announced that he has received 522,000 shares worth just over $31 million. James made about $25 million from all accounts in 2021.
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