Coca-Cola competes every day in bars and supermarkets. Sales are the recurring concern of the company's managers. In parallel, however, a headache for executives is a lawsuit the Atlanta-based group maintains against the tax agency American (the Internal Revenue Service, IRS). The company has suffered several setbacks and in its latest annual report has raised the amount at stake to no less than 16 billion dollars (about 14.8 billion euros at the current exchange rate).
“The company estimates that the potential aggregate liability for taxes and interest could be approximately $16 billion as of December 31, 2023,” the company indicates in its report, although it maintains confidence in gaining resources in the courts to prevent the criteria of the tax authority are applied.
The United States Tax Court published in November an opinion on their website, in which he agreed with the treasury. The new ruling was complementary to another ruling in 2020. Both referred to transfer prices or the way in which Coca-Cola allocated profits to different subsidiaries. Authorities believe Coca-Cola shifted excess profits to foreign jurisdictions to avoid higher U.S. taxes. The IRS rejected this tax engineering 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 now in the process of reaching an agreement on the tax impacts of those two rulings. Once this process is completed, the Tax Court will issue a ruling in the case and the company will have 90 days to file an appeal with the Court of Appeal. The initial case refers to the years 2007 to 2009 and Coca-Cola estimates that it will have to pay approximately $5.8 billion for it, plus additional interest accrued from December 31 to the time of payment. Some or all of this amount, plus accrued interest, would be refunded if the company won the appeal.
But furthermore, if the methodology established by the Tax Court to reallocate income from foreign licensees were finally confirmed by the courts and the IRS decided to apply it to subsequent years—and the courts ruled in favor of the tax agency—the impact It would be those 16,000 million dollars. The estimate has gone up from the 14,000 million estimated a year ago.
Furthermore, an adverse ruling would condemn Coca-Cola to suffer an effective tax rate 3.5 points higher from now on, which would penalize its net results and its stock market valuation. There is so much at stake that the company will try to take the case even to the Supreme Court if it cannot get the judges to agree with it first.
Coca-Cola believes that the IRS and the Tax Court “erroneously interpreted and applied the applicable regulations by reallocating the income obtained by the company's foreign licensees to increase the US tax.” “Furthermore, the Company believes that the retroactive imposition of such tax liability using a different calculation methodology than that previously agreed upon by the IRS and the Company, and audited by the IRS for more than a decade, is unconstitutional. The company intends to assert its claims on appeal and vigorously defend its position,” it states in its annual report, in line with what it had anticipated.
The company still considers gaining the resources more likely than losing them, but has increased its provisions just in case. “Although the Company completely disagrees with the positions of the IRS and with the parts of the opinions that confirm these positions, it is possible that part or all of the adjustment proposed by the IRS and sustained by the Tax Court will ultimately be confirmed,” admits.
Follow all the information Five days in Facebook, x and Linkedinor in our newsletter Five Day Agenda
The Five Day agenda
The most important economic quotes of the day, with the keys and context to understand their scope
To continue reading this Cinco Días article you need a Premium subscription to EL PAÍS
_
#CocaCola #raises #risk #tax #litigation #billion