Document Type

Article

Publication Date

4-2025

Abstract

In his excellent recent article on Coca-Cola’s appeal of its transfer pricing defeat in the Tax Court, Tax Notes contributing editor Ryan Finley explains that Coca-Cola’s main argument is based on the idea that “the IRS led the company into an ambush.” In 1996 the IRS entered into a closing agreement with Coca-Cola that provided that for the 1987 through 1995 tax years, the division of profits between Coca-Cola and its foreign “supply points” (the subsidiaries responsible for mixing the secret formula) would be based on a 10 percent return to the subsidiary and that any profit above that would be split equally between Coca-Cola and the subsidiaries. The IRS agreed that “the 10-50-50 apportionment formula yielded arm’s-length results consistent with section 482.” The closing agreement also gave “Coca-Cola prospective protection from any section 6662 accuracy-related penalties . . . provided that the company kept applying the 10-50-50 apportionment formula in later years.”

Comments

Reprinted with the permission of Tax Analysts.

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