Coca-Cola Co. is fighting a U.S. tax court ruling that left the company on the hook for most of a tax bill of more than $ 3 billion, arguing that the IRS opposed it in calculating the amount broken the law.
The unprecedented nature of a November opinion upholding the IRS amendments to the company’s tax law warrants further scrutiny, possibly by the entire tax court, said Coca-Cola in a re-examination petition filed by Bloomberg Law.
The case is one of the most well-known IRS disputes related to transfer pricing, the way companies value transactions between their subsidiaries. The Coca-Cola case focuses on how the company shifted profits to foreign subsidiaries that operate plants in countries like Brazil and Ireland, both of which have lower corporate tax rates than the US
Coca-Cola called on the court to review Judge Albert Lauber’s ruling, which upheld two IRS adjustments that helped increase the beverage company’s taxable income by more than $ 9 billion in 2007-2009, which is the higher Tax burden triggered. This ruling raises “fundamental questions of tax, administrative and constitutional law” that deserve a further look, argued the company in its motion.
The IRS’s attempt to impose a new tax calculation method on Coca-Cola after approving a different method for more than a decade is unconstitutional, the filing said.
The filing also argued that the IRS’s new tax calculation methods violated Treasury Department regulations by failing to take into account that Coca Cola’s supply points had valuable licenses and had spent billions marketing the brand, which the tax court did not recognize.
“The court erroneously failed to include these licenses in its transfer pricing analysis because Coca-Cola ‘was the registered legal owner of virtually all trademarks and other intangible assets,'” the company said.
The delivery points paid and bore the risk of marketing expenses in their regions and must be compensated for their contributions to Coca-Cola’s brands, the company added.
The motion was signed by J. Michael Luttig, the former federal judge who hired the company in January; Constitutional Councilor Laurence H. Tribe; Massey & Gail LLP founding partner Jonathan Massey; Shay Dvoretzky, Head of Supreme Court Practice at Skadden, Arps, Slate, Meagher & Flom LLP; and Gregory G. Garre, director of the Supreme Court Law Firm at Latham & Watkins LLP.
The IRS declined to comment.
The case is The Coca-Cola Co. v Commissioner, TC, No. 31183-15, request for re-examination dated 06/02/21.