Background
In a 2020 opinion, the Tax Court sustained the IRS’ reallocation, for the 2007, 2008, and 2009 tax years, of about $9 billion in income from seven of Coca-Cola’s foreign manufacturing affiliates, known as “supply points,” to its U.S. parent company. (155 T.C. 145, 11/18/2020)
The IRS made the adjustment after it abandoned the transfer pricing method the parties had used for years — a formula known as the “10-50-50” method that was memorialized in a 1996 closing agreement for prior tax years. Instead, the IRS used the comparable profits method under IRC § 482, which determined the foreign subsidiaries’ profits by comparing them to independent Coca-Cola bottlers.
The Tax Court found this was not an abuse of the IRS’ discretion, and Coca-Cola appealed to the 11th Circuit.
To dig deeper, visit the original article on the Thomson Reuters blog.