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Coca-Cola case: soft drinks brand gets a hard lesson

Intercompany Agreements

13 December 2021

Last year, the US Tax Court's decision in the Coca-Cola case sent shockwaves through the tax and transfer pricing community. USD 12 billion is an eye-watering figure, so it was not surprising that a few months ago the group filed a request for the Court to reconsider the decision. The Court recently published its response, and it doesn't make happy reading for Coca-Cola or its advisers.

Coca-Cola had filed its request for consideration well after the usual 30-day deadline, and the Court rejected all of the group's arguments for an extension. The Court also made it very clear that it would have denied the request anyway.

One of the subscribers to our weekly newsletter, Miguel Medeiros, a Tax Manager at Sol Petroleum, kindly got in touch with us to share his thoughts on which aspects of the Court's response are particularly significant. He said:

"The wording was very sturdy. Here are some sentences that I found very 'self-explanatory':

  • The Court concluded that the motion was 'futile' and would have failed on the merits.
  • Coca-Cola’s hiring of new counsel post-trial was not a compelling reason to allow the company to bypass the 30-day deadline, noting that if that were the standard, 'a party could string litigation out indefinitely if its pockets were deep enough'.
  • Coca-Cola had had the opportunity to raise the arguments advanced in the motion at any earlier point. Indeed, the Court viewed the arguments made in the motion as having been raised earlier 'although clothed in slightly different garments'.
  • Coca-Cola 'had no legitimate reliance interests'.
  • Petitioner had supplied 'no authority, in law or logic, to support that proposition'.
  • 'Hope is not something that gives rise to legal or constitutional entitlements'."

Miguel adds: "My favourite one: Attempts at 'sandbagging the IRS' should not happen."

Ouch. You can read the Court's decision in full here, but the lesson is clear. When a group's ICAs don't match its transfer pricing policies this creates serious risks, and puts the group in a much weaker position with the tax authorities.

Thanks very much to Miguel for sharing his thoughts with us. Would you also like to receive a free weekly newsletter with useful insights, news and practical tips? If so just fill out the box below to subscribe.

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Article by
Paul O’Regan

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