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Coca-Cola is waging a high-stakes corporate battle with more than $20 billion at stake, and the opponent isn’t Pepsi or even Dr Pepper. It’s the Internal Revenue Service.
The dispute between the beverage company and the taxman heads to a federal appeals court in Miami this week. The legal issues are complex, but the core question is simple: Does Coca-Cola report too much profit abroad and too little in the U.S.?
A Coca-Cola win would remove a potential liability that has been hanging over the company for a decade and give comfort to multinationals facing similar audits. If Coke loses, however, it faces a bill for back taxes and interest that’s larger than the company’s net income from 2025—plus a higher tax rate going forward.
The stakes: The potential $20 billion price tag has been mounting for years. The company paid $6 billion in taxes and interest after the 2020 Tax Court loss. If Coca-Cola wins, it gets that back, plus interest.
A complete loss, however, wouldn’t just affect 2007 through 2009. Because the company still uses the disputed cross-border method for calculating its taxes, Coke would likely owe more for 2010 through 2025. That’s $14 billion in taxes and interest, plus a 3.8 percentage-point jump in Coke’s effective tax rate this year. The company says that would cost $450 million for the first quarter alone.
Companies are watching: The IRS frequently challenges cross-border transactions, and it’s currently litigating multibillion-dollar cases against Meta Platforms and Amgen. Three of the Big Four accounting firms—all but EY, Coca-Cola’s auditor—weighed in with a brief favoring the company. So did the U.S. Chamber of Commerce and the National Foreign Trade Council.
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