Coca-Cola competes every day in bars and supermarkets. Sales is the recurring concern of business leaders. At the same time, however, the executives are faced with a legal dispute that the Atlanta-based company is waging against the US tax authority (Internal Revenue Service, IRS). The company has suffered several setbacks and in its most recent annual report has increased the amount at stake to no less than 16 billion dollars (around 14.8 billion euros at the current exchange rate).
“The company estimates that the total potential liability for taxes and interest as of December 31, 2023 could be approximately $16 billion,” the company states in its report, but remains confident of future resource sourcing criteria not applied become.
The US Tax Court published an opinion on its website in November agreeing with the Treasury Department. The new ruling complemented another from 2020. Both concerned transfer pricing, or the way Coca-Cola distributed profits among various subsidiaries. Authorities say Coca-Cola shifted excess profits to foreign jurisdictions to avoid higher U.S. taxes. The IRS rejected this tax manipulation and made adjustments to the tax returns, which the company appealed. The same judge who issued the new ruling in November agreed with the tax agency in its 244-page 2020 decision.
Coca-Cola and the IRS are currently in the process of reaching an agreement regarding the tax implications of these two rulings. Once this process is complete, the Tax Court will make a decision in the case and the company will have 90 days to appeal to the Court of Appeals. The original case covers the years 2007 to 2009 and Coca-Cola expects to pay approximately $5.8 billion, plus additional interest accruing from December 31 to the date of payment. This amount, plus accrued interest, will be refunded in whole or in part if the company wins on appeal.
In addition, if the Tax Court's method of redistributing income from foreign licensees were finally confirmed by the courts and the IRS decided to apply it to subsequent years – and the courts agreed with the tax authority – the impact would be $16,000 million. The estimate is up from the 14 billion estimated a year ago.
In addition, a negative ruling would result in Coca-Cola suffering a 3.5 point higher effective tax rate from now on, which would penalize its net results and stock market valuation. The stakes are so high that the company will even attempt to take the case to the Supreme Court if it can't get the justices to agree first.
Coca-Cola believes that the IRS and the Tax Court “misinterpreted and applied applicable rules by reallocating revenue generated by the Company's foreign licensees in order to increase U.S. tax.” “Furthermore, the Company believes that the retroactive collection of such tax liability using a calculation method other than that previously agreed upon between the IRS and the Company and examined by the IRS for more than a decade is unconstitutional.” “The Company wants its “Enforce claims in the appeal process and defend ourselves vigorously,” it says in its annual report, in line with its expectations.
The company still believes a gain on resources is more likely than a loss, but has increased its reserves just in case. “Although the Company strongly disagrees with the IRS's positions and the portions of the rulings affirming those positions, it is possible that some or all of the adjustments proposed by the IRS and supported by the Tax Court will be ultimately affirmed,” he said he admits.
Follow all information Five days on Facebook, X and LinkedIn, or in our newsletter Five Day Agenda
The Cinco Días Agenda
The most important business quotes of the day, with the keys and context to understand their significance
received it
To continue reading this Cinco Días article, you will need a premium subscription to EL PAÍS
_