Coca-Cola Co. could owe $12 billion in back taxes if it loses a long-running dispute with the U.S. Internal Revenue Service.
The company noted in its fourth-quarter report (published Feb. 10) that in November 2020, the U.S. Tax Court "predominantly" sided with the IRS on the issue of “transfer pricing,” the licensing of intangible property (such as Coca-Cola’s brand names and formulas) to its foreign licensees so they can make and distribute Coca-Cola products.
After a five-year audit of the company, apparently ending in 2015, the IRS claims the company owes an additional $3.3 billion in taxes for 2007, 2008 and 2009.
"The company has … calculated the potential liability of approximately $12 billion that could result from the application of the IRS' proposed transfer pricing methodology to relevant foreign licensees, including taxes and interest accrued through Dec. 31, 2020," Coca-Cola reported.
However, "The company believes that it will ultimately prevail in the litigation based on the technical and legal merits of the company's position, its consultation with outside advisors, and the company's belief that the IRS' retroactive imposition of tax liability is unconstitutional.
"Accordingly, the company is not recording a provision for the full amount of the potential liability. However, in consideration of the tax consequences resulting from the application of alternative transfer pricing methodologies that could be applied by the courts in resolving the litigated matters, the company recorded a tax reserve of $438 million for the year ended Dec. 31, 2020."
Coke continues to fight the matter in court.
