Biggest Beverage Producer Challenges Tax Bill Of 3.3 Billion Dollars In America

; posted on
April 3rd, 2018

The biggest beverage producer, Coca-Cola Company, has been tangled with an enormous-figure tax bill. The letter was first sent in 2015 September, in which the company was charged 3.3 billion dollars by the IRS to neutralize effects of royalties paid incompliant with the arm’s length principle by the company to foreign affiliates during tax year 2007-2009.

Position of IRS

The IRS argues that during 2007 to 2009, the company failed to charge sufficient amount of royalty from its overseas subsidiaries by using Comparable Uncontrolled Transaction (“CUT”) method to price its intellectual property (mainly trademark). Accordingly, the Comparable Profits Method (“CPM”) should be applied to charge foreign related parties for IP based on the arm’s length principle, approach which was expected to be applied to transfer pricing by the IRS since 2016. This pricing strategy lowered the taxable amount of the US parent where the tax rate is higher thus lightened the group’s overall tax burden by storing profit in jurisdictions with lower tax rate.

Position of the Tax Payer

The company announced that it had acquired the approval of the IRS on its pricing methods used in an agreement in 1996. Instead of an advanced pricing agreement (APA), the document was indeed an APA-like “audit closing agreement”. The consequence for the trial between the company and IRS is expected to be released this mid-April.

Sources: Reuters, DUFF&PHELPS

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