The Business Post has reported new details on Coca-Cola's evasive tax strategy paying €4.4 billion in dividends to a Cayman Islands entity, already scrutinized by U.S. Tax Court, which indicated that Coca-Cola owes around $6 billion in back taxes and interest.
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| Money Sent to Cayman Islands |
The IRS is Investigating Coca-Cola's Offshore Tax Strategy
The Business Post reported that a significant amount dividends was paid to an entity in the Cayman Islands, and these dividends were paid from its Irish office - an office being scrutinized by the U.S. Internal Revenue Service (IRS). According to the article, the IRS is "probing whether Coca-Cola had moved profits from its U.S. tax base and allocated it to its Irish Operation, which then paid the money to the Cayman Islands, an offshore entity.
Yahoo! Finance reported that U.S. Tax Court found that Coca-Cola has hidden "astronomical levels" of profits in low-tax jurisdictions - one of which being Ireland - and that Coca-Cola owes the IRS about $6 billion USD. The other subsidiary named was it's Brazil subsidiary, which together could result in a combined $16 billion owed to the U.S.
Yahoo! Finance reported:
"The Irish subsidiary's tax rate tells a striking story. Back in 2017, the company paid a mere 1.32% on what it earned from operations. That rate rose to 7.88% by 2023 but fell again to 5.87% last year after the company claimed over 239 million euros ($280 million) in tax relief." -Leslie Sattler of Yahoo! Finance
Per the Business Post article, this is not the first time Coca-Cola's Irish subsidiary has been involved in a tax dispute with the U.S.
The U.S. Internal Revenue Service (IRS) has been disputing Coca-Cola’s transfer pricing arrangements involving its Irish operation going back at least to the mid-2010s, with formal litigation and major rulings tied to profit allocations for tax years as early as 2007–2009. The IRS designated the case for litigation in 2015, kick-starting a long-running dispute over whether profits were artificially shifted offshore to subsidiaries in low-tax jurisdictions, including Ireland.
Reported by The Irish Times:
A U.S. Tax Court judgment from 2020 highlighted that Coca-Cola had manipulated profit allocations to its Irish unit—among others—leading to an extremely low effective tax rate and prompting orders for billions in back taxes and interest. This has been part of a long-running tax fight covering roughly a decade and continuing into appeals and related scrutiny.
CFO: "The Company is Confident"
Chief Financial Officer John Murphy said the company is confident.
"We have outside counsel who have, each quarter, continued to evaluate the case on the facts that are available to them, and they continue to offer an opinion that gives us a greater-than-not chance of prevailing," he said.
Should Companies Like Coca-Cola Pay a Flat 15% Global Minimum Tax Rate?
To make things fair across the board, some believe that a global minimum tax rate should be instituted for all international companies. That way, large corporations could not have an option to evade taxes by moving revenues to overseas operations or offshore entities.
Yahoo! Finance also reported:
"What's being done about corporate tax avoidance?More than 140 countries have agreed to a 15% global minimum corporate tax through the OECD, an effort meant to close loopholes that let companies shift profits to havens.
Meanwhile, the U.S. continues pursuing its case against Coca-Cola, with the company fighting the ruling on appeal."
