Coca Cola has revealed it received a tax bill from the IRS. Apparently, Uncle Sam believes the world’s most favorite brand owes it $3.3 billion.
Coca Cola has been notified by the Internal Revenue Service (IRS), that the company owes the government $3.3 billion in federal taxes. This amount is separate from the regular taxation process, but is inclusive of back taxes, accrued interest and penalties. It is claimed that the interest has been accumulating from 2007. As expected, Coca Cola has challenged the amount.
In a regulatory filing, Coca Cola has categorically mentioned that the “assessments from the Internal Revenue Service are without merit and plans to pursue all administrative and judicial remedies necessary to resolve the matter.”
The company has clarified that the disagreement is over how much income should it report as taxable in the U.S. Coca Cola earns handsomely by licensing its products in foreign markets. For quite some time, the IRS has been insistent that Coca Cola should report this earnings in the U.S and pay taxes accordingly. However, it is apparent that the company cleverly manages its revenues and reports them where it earns them; overseas, and thereby saves a ton on taxes it would have to otherwise cough up to Uncle Sam.
Interestingly, Coca Cola has claimed that it strictly follows the transfer pricing methodology for these licenses since the methodology was agreed with the IRS in a 1996 closing agreement that applied back to 1987, reported Sport Act. The agreement has accorded penalty protection to Coca Cola for all these years. Interestingly, IRS too has not asserted any penalties till date, but continues to maintain that the company should report the revenues in the United States. Coca Cola issued a statement.
“The IRS didn’t notify the company, it was planning to assert that it owed these taxes until two weeks before issuing the notice, and the IRS has also made a recommendation that this matter be designated for litigation. We firmly believe that the assessments are without merit and plan to pursue all administrative and judicial remedies necessary to resolve this matter. We [also] plan to file a petition challenging the notice.”
Though the company may be gearing up for a long drawn legal battle, Coca Cola is quite aware of the financial impact,and provided a statement.
“The ultimate outcome of disputes of this nature is uncertain, and if the IRS were to prevail on its assertions, the assessed tax and deficiency interest could have a material adverse impact on the company’s financial position, results of operations or cash flows.”
Needless to say, neither of the party would want to be drawn into the hazards of a lengthy litigation. Incidentally, more-often-than-not, most of such cases are settled for a fraction of the amount that IRS claims, reported USA Today.
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