The Coca-Cola Company (NYSE:KO) is heading to the federal appeals court this week in a high-stakes tax dispute with the Internal Revenue Service that could leave the beverage giant facing up to $20 billion in taxes and interest over how it reported foreign profits.
The case will be heard by the U.S. Court of Appeals for the Eleventh Circuit in Miami on June 25.
At the center of the dispute is Coca-Cola’s use of transfer pricing, an accounting method used by multinational companies to allocate profits between parent companies and foreign subsidiaries. The core issue is whether Coca-Cola reported too much profit abroad and too little in the U.S., lowering its tax burden.
Fight Over Foreign Profits
Coca-Cola argues it structured its global operations using a 1996 agreement with the IRS, known internally as the “10-50-50” method.
Under that model, foreign supply points in countries including Brazil, Ireland and Mexico keep 10% of gross sales, while the remaining profits are split equally between the U.S. parent and foreign subsidiaries.
The IRS argues that the agreement did not guarantee permanent approval and alleges Coca-Cola improperly shifted profits to lower-tax jurisdictions.
The tax agency won an initial victory in U.S. Tax Court in 2020, forcing Coca-Cola to pay roughly $6 billion in taxes and interest.
If Coca-Cola loses the appeal, the consequences could extend well beyond the 2007-2009 tax years originally under dispute. Because the company continues using the same accounting method, it could owe another $14 billion for tax years 2010 through 2025, bringing total exposure to $20 billion.
Former U.S. Solicitor General Gregory Garre is expected to argue on behalf of Coca-Cola.
The beverage giant reported strong first-quarter results in April and previously announced plans to invest $1 billion in South Africa through 2030, underscoring its long-term growth focus even as the tax battle intensifies.
Coca-Cola and the IRS did not immediately respond to Benzinga’s request for comment.
What’s Going On With KO Stock?
Shares of The Coca-Cola Company closed Monday at $79.53, up 0.18% on the day. In premarket trading Tuesday, the stock rose 1.21% to $80.49. Shares of Coca-Cola are up 15.06% year to date. Meanwhile, rival PepsiCo, Inc.‘s (NASDAQ: PEP) shares closed at $140.71, down 0.92% on Monday, though the stock remains up 1.07% year to date.
Benzinga Edge Stock Rankings show Coca-Cola with a Momentum score of 54.15, Growth of 99.34, Quality of 92.26 and Value of 5.00. The stock has a positive price trend across short-, medium- and long-term time frames.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
Image via Shutterstock
Recent Comments