Coca-Cola Appeals IRS Transfer-Pricing Ruling That Could Add $14 Billion to Its $6 Billion Payment

Coca-Cola and the Internal Revenue Service will begin oral arguments Thursday in the US Court of Appeals for the Eleventh Circuit in Florida over the company's transfer pricing of overseas profits. A loss for Coca-Cola could produce a total tax bill of about $20 billion.

The dispute traces to a 2015 IRS audit that concluded Coca-Cola undercharged its units in Ireland, Brazil, Chile, Mexico, Costa Rica, Egypt and Eswatini for licensing and other transactions.

The US Tax Court upheld the IRS position in 2020. Coca-Cola agreed to pay the IRS $6 billion in back taxes and interest in 2024 while preparing its appeal and could owe up to $14 billion more if the Eleventh Circuit rules for the government. The case centers on a 1996 settlement that allowed Coca-Cola's foreign affiliates to keep a profit equal to 10 percent of gross sales, with the remainder split evenly between headquarters and the overseas unit.

Coca-Cola argues the formula should apply to later years. The IRS maintains the settlement does not cover liabilities from audits of 2007, 2008 and 2009. Coca-Cola states the IRS misinterpreted applicable regulations and says it is confident of prevailing on appeal.

The Eleventh Circuit arguments are the latest step in litigation that began after the 2015 notice. The outcome may influence how the IRS handles similar transfer-pricing disputes with other US multinationals. In 2023 the IRS announced Microsoft owed $28.9 billion in back taxes plus penalties and interest on income from subsidiaries in Puerto Rico, Ireland and Singapore.

In 2024 the IRS announced Airbnb had underpaid taxes by $1.33 billion and Newell Brands by $90 million. The IRS has lost earlier transfer-pricing cases against Bausch & Lomb, US Steel Corp and Hospital Corp of America. Al Jazeera reported that the 2020 Tax Court ruling marked the first clear IRS victory in a profit-shifting case in many decades.