Coca-Cola owes $3.3 billion in taxes over transfer pricing

An audit found the company’s reported U.S. income from 2007 to 2009 should have been higher.

(Source : Wall Street Journal : Sep 18, 2015)

Coca-Cola Co. said it has been notified by the Internal Revenue Service that it owes $3.3 billion in federal income taxes, plus interest, after an audit found the company’s reported income from 2007 to 2009 should have been higher.

Coke said the dispute relates to transfer pricing, or how it reports income from foreign licensing of manufacturing, distribution, sale, marketing and promotion of products in overseas markets.

Transfer pricing is, at its root, a relatively simple method for determining in which country a multinational company makes its profit.

To help them do that, companies set prices at which they transfer goods and services between entities they own. But transfer pricing has become a flash point as governments bemoan the way big multinational firms use them to shift costs between units and avoid paying large amounts of corporate income tax within their borders.

A number of multinationals, including Microsoft Corp. and Amazon.com Inc., have also had disputes with the IRS over transfer pricing.

Coke said the IRS also has recommended the matter for litigation. The company said it plans to file a petition in U.S. Tax Court challenging the notice.

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