Atlanta – The U.S. tax authority, the Internal Revenue Service (IRS), has delivered a notice to Coca-Cola Co. (NYSE: KO) for owning around $3.3 billion in extra taxes and plus interest.
After an audit of the tax years 2007 through 2009, the IRS accuses the beverage company for having under-reported income during the three-year period by leaving out substantial sums related to licensing fees paid by foreign Coke producers and distributors.
The IRS hasn’t demanded any penalties, other than the payment for some of the money earned from offshore licensees, but Coca-Cola said it believes the assessment is without merit as they have being using the accounting principles for transfer pricing established in an agreement with the IRS in 1996.
“The company has continued to abide by its terms for all subsequent years,” the company said on a released statement on Friday.
Coca-Cola is not the first company to be embroiled recently by the IRS. The agency has been also noticing Amazon.com Inc. and Microsoft Corp. also over profits recorded in foreign countries.
“We plan to pursue all administrative and judicial remedies necessary to resolve this matter,” the statement also said.
The main reason of this situations comes from the system of U.S. law which incentivizes companies to book income in low-tax countries and leave profits there, as they don’t have to pay the U.S until they repatriate the money. But that does not make the IRS any less right when in 2014, Coca-Cola reported having earned 57 percent of its net revenue outside the U.S., according to its most recent annual report. Now for tax purposes however, the company reported earning 83 percent of its pretax income outside the U.S.
The company, based in Atlanta, continues to believe it has adequate tax reserves and has requested a meeting with the IRS’s chief counsel and expects to file a petition in the U.S. Tax Court to challenge the notice.
“The IRS now seeks to depart from this longstanding practice in order to increase substantially the amount of tax […] We will vigorously defend our position. We are confident we will prevail on the merits of this case” Coca-Cola stated.