Coca-Cola has asked the United States Tax Court to look into the constitutional and tax implications of its 2020 decision in its long-running dispute with the Internal Revenue Service (IRS).
Coca-Cola said in a filing dated Thursday, June 2 that the IRS's tax calculation was "legally erroneous" when it came to licenses of intangible assets.
"The court erred in failing to account for those licences in its transfer-pricing analysis on the legally erroneous ground that Coca-Cola ‘was the registered legal owner of virtually all trademarks and other intangible assets,'" according to the company filing.
The case concerns Coca-profit-splitting Cola's strategy and how it distributes revenue from trademark and other intangibles licenses among its international affiliates.
Coca-Cola signed an agreement with the Internal Revenue Service in 1996 to ensure that this profit-sharing method was legal. The method was applied to the company's transactions from 1996 onwards, only for the IRS to issue a $3.4 billion bill in 2016 for back taxes from 2007 to 2009.
Coca-Cola is hopeful that despite being denied its request to file an out-of-time motion in 2021, it can still win its case in court. The IRS's attempts to impose a different calculation, according to the company's legal team, were unconstitutional.
Between 2007 and 2009, the IRS made two adjustments to Coca-TP Cola's arrangements. This resulted in a $9 billion increase in taxable income for Coca-Cola, as well as $3.4 billion in back taxes.
The agreement originally only applied to bottling plants in Puerto Rico, but the company later expanded it to include operations in Mexico. Coca-Cola believed it had a firm agreement with the Internal Revenue Service (IRS) on how much it would charge foreign affiliates for the rights to produce and distribute its signature beverage.
Faced with this, Coca-Cola decided to sue to overturn the changes. In November 2020, the US Tax Court ruled against the company, but the total amount of $3.4 billion was reduced to $1.6 billion.
The soft drinks company made a valid decision regarding the tax treatment of dividends paid by foreign manufacturing affiliates to satisfy royalty obligations, according to the court. As a result, the IRS made $1.8 billion in adjustments.
However, with the latest filing, the stage may be set for yet another legal battle.
By fLEXI tEAM