Coca-Cola and the Internal Revenue Service are in a $3.3 billion disagreement.
According to a shareholder disclosure report the corporation filed with the U.S. Securities and Exchange Commission, the Coca-Cola Co. received a notice from the IRS late last week stating that the company’s taxable income for 2007-2009 should be higher, meaning the company owes $3.3 billion in taxes plus interest. The IRS issued the notice following a five-year audit.
At issue, Coca-Cola states, is how much taxable income the company should report in the U.S. in connection with its licensing of certain products for overseas markets.
Coca-Cola also states in the filing that it has used the same pricing methods for such licenses since the IRS approved those methods in a 1996 agreement that applied back to 1987:
The closing agreement provides prospective penalty protection as long as the Company follows the prescribed methodology, and the company has continued to abide by its terms for all subsequent years. …
The Company firmly believes that the assessments are without merit and plans to pursue all administrative and judicial remedies necessary to resolve this matter.
Robert Willens, president of the tax and accounting service Robert Willens, tells the Associated Press that this is a common tax issue for multinational companies. Willens says they tend to charge foreign subsidiaries low licensing fees to shift reportable income from the U.S., which has a higher corporate tax rate than other countries.
Willens also tells the AP that cases regarding the issue are settled for a fraction of the amount in the claim:
“They hardly ever get to court, because neither party wants to experience the hazards of litigation.”
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