Recently, Coca-Cola (NASDAQ: KO) announced revenue reports, in that they have mentioned that, Coca-Cola might need to pay $3.3 billion as a tax payment in “additional federal income taxes”. The 169 billion dollar company revealed tax audit for the year 2007 to 2009, and then Internal Revenue Service claimed that the company need to pay around $3.3 billion as an additional federal income tax and also with interest for the sum.
The company stated that, the extra tax which IRS reported is related to “transfer pricing dispute”. It is one of the tricks which is used by the multinational companies to cut off their taxes. For an instance, a multi-national company sets up several subsidiaries around all over the globe, and transfer their assets from one company to another company.
For others, it might be a normal scenario, but the fact is that, those companies used to shift profits from countries which has high tax to those countries which has less tax. Yes, this might give them a big chance to cut off their taxes and increase their profit levels to the extreme one.
The most popular way of performing transfer price is mainly done by intangible property. These help the company to promote their goods in overseas, so that, there won’t be a home place for paying tax for the intangible properties. Therefore, large sum of money can be achieved as a profit by using these sort of tricks. The Internal Revenue Service clearly mentioned this to the company, and asked them to pay $3.3 billion including tax till the year.
In reply to that, Coca-Cola has replied as,
“it has followed the same transfer pricing methodology for these licenses since the methodology was agreed with the IRS in a 1996 closing agreement that applied back in 1987.”
In order to resolve this issue, Coca-Cola has requested a formal meeting with Chief Counsel to solve the issue, and expecting for a good cause for the company.