Why Coca-Cola and the US taxman are at war over a $20bn tax bill

Coca-Cola and the Internal Revenue Service (IRS) of the United States will face off in a Florida court this week in the latest episode of a decades-long legal battle over the beverage giant’s tax liability on overseas profits. The Atlanta, Georgia-based company and the US tax service will begin oral arguments on Thursday in a dispute that centres on transfer pricing – the practice of setting prices for transactions carried out between a company’s own affiliates – and could result in Coca-Cola facing a tax bill of about $20bn. Recommended Stories list of 4 items end of list The case is being closely watched in corporate circles because the outcome will have implications for the amount of tax US-based multinational corporations must pay on income generated through their foreign subsidiaries. What is the case about? Coca-Cola is appealing a 2020 US Tax Court ruling that upheld the IRS’s finding that the soft drink giant underreported profits from transactions between its foreign subsidiaries. In 2015, the IRS notified Coca-Cola that it owed billions in back taxes after concluding that the company had undercharged its units in Ireland, Brazil, Chile, Mexico, Costa Rica, Egypt and Eswatini, formerly known as Swaziland. US multinationals often charge low licensing fees for their overseas units to minimise their reportable income in the US, which has a higher corporate tax rate than many of its peers. …