2020’s Most Important Transfer Pricing Case—Coca-Cola

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Court Case Digests
November 18, 2020

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2086 Bottled and Canned Soft Drinks and Carbonated Waters
312111 Soft Drink Manufacturing
federal taxation
brand value, intangible property, transfer pricing, intangible assets, intangible, dividends, trademark, arm's length, comparable, contract
Coca-Cola Co. v. Comm'r
155 T.C. 145, 2020 U.S. Tax Ct. LEXIS 27, 155 T.C No. 10, 2020 WL 6784134
US
Federal Court
Federal
United States Tax Court
Experts are listed in the Appendix of the full court opinion
Lauber

Summary

Coca-Cola had been applying a transfer pricing method called the 10-50-50 since it entered into a closing agreement with the IRS in 1986, covering the years 1987 to 1995. Coca-Cola had consistently followed that transfer pricing method; the IRS had audited Coca-Cola annually and “signed off” on that transfer pricing method for over a decade. Upon examination of Coca-Cola’s tax returns for 2007 to 2009, the IRS determined that Coca-Cola’s transfer pricing methodology did not reflect arm’s-length norms because it overcompensated the supply point and undercompensated Coca-Cola. The IRS reallocated income between Coca-Cola and its supply points employing the comparable profits method (CPM) pursuant to Reg. Sec. 1.482-5. The IRS increased Coca-Cola’s taxable income by over $9 billion assessing over $3 billion in additional taxes!

See Also

Coca-Cola Co. v. Comm'r

Full Text of Court Cases
November 18, 2020

Coca-Cola had been applying a transfer pricing method called the 10-50-50 since it entered into a closing agreement with the IRS in 198, covering the years 1987 to 1995. Coca-Cola had consistently followed that transfer pricing method; the IRS had audited Coca-Cola annually and “signed off” on that transfer pricing method for over a decade. Upon examination of Coca-Cola’s tax returns for 2007 to 2009, the IRS determined that Coca-Cola’s transfer pricing methodology did not reflect arm’s-length norms because it overcompensated the supply point and undercompensated Coca-Cola. The IRS reallocated income between Coca-Cola and its supply points employing the comparable profits method (CPM) pursuant to Reg. Sec. 1.482-5. The IRS increased Coca-Cola’s taxable income by over $9 billion assessing over $3 billion in additional taxes!