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Coca-Cola gambles 14,000 million dollars in a tax dispute in the United States

2023-02-22T03:01:43.572Z


The company calculates that the first payment may exceed 5,200 million, but ensures that it will resort to the courts


Coca-Cola does well on supermarket shelves, but not so well in tax courts.

The Atlanta-based soft drink giant has filed its annual report with the United States Securities and Exchange Commission (SEC) on Tuesday and in it reveals that what is at stake in a dispute it maintains with the IRS, the US tax agency, amounts to 14,000 million dollars (about 13,100 million euros at the current exchange rate), according to the new estimate updated to December 31, 2022.

US tax authorities questioned how Coca-Cola allocated profits to different subsidiaries.

In their view, it was shifting excess results to foreign jurisdictions to avoid facing higher US taxes.

The IRS challenged that tax engineering and an administrative economic court ruled against the company in November 2020.

At the time, the tax court reserved ruling on the effect of Brazilian legal restrictions on royalty payments by Coca-Cola's licensee in Brazil until after a similar case involving conglomerate 3M was clarified.

That case has been settled for two weeks, so Coca-Cola is now waiting for a quick final decision on its own case.

The lawsuit initially refers to the years 2007 to 2009 and, in its recently published annual report, Coca-Cola has updated its estimate of what is at stake.

"The Company currently estimates that the payment to be made at that time in connection with fiscal years 2007 through 2009 (...) would be approximately $5.2 billion (including interest accrued through December 31, 2022), plus additional interest accrued up to the time of payment”, explains the company, which shows its intention to appeal to the courts of justice, although it would have to pay first.

"A part or all of this amount would be reimbursed if the company won the appeal," adds Coca-Cola.

But, in addition, what happened for the years 2007 to 2009 can be extrapolated to the following ones.

Coca-Cola has calculated the "potential impact" of applying those criteria, assuming they were upheld by the courts and the IRS decided to apply them to subsequent years.

"This impact would include taxes and interest accrued through December 31, 2022 for the disputed fiscal years from 2007 to 2009 and for subsequent fiscal years from 2010 to 2022," the company explains.

"The company estimates that the potential aggregate tax and interest liability could be approximately $14 billion as of December 31, 2022," the company adds.

which calculates that the continued application of those tax criteria in future years would increase the group's effective tax rate by approximately 3.5%.

The company had an effective tax rate of 18.1% in 2022, down three points from the previous year, according to its annual report.

Coca-Cola maintains that it will most likely end up winning the case in court, so it hardly has provisions in place to deal with it.

And if he loses?

"We are confident that, between our ability to generate cash flows from operating activities and our ability to obtain loans at reasonable interest rates, we can manage the range of possible outcomes in the final resolution of the matter," the company says.

8.2 million for Manuel Arroyo

The company does not include executive compensation in its annual report, but refers to the documentation of the next shareholders' meeting.

However, in parallel to the registration of the report and days after the publication of the annual results, several executives have communicated the receipt of their prizes in shares that they have received as part of the company's compensation plans.

Manuel Arroyo, in an image from 2017, when he was CEO of Coca Cola Iberia.

Among these executives is Manuel Arroyo, commercial director of the American group.

According to the communication made to the US supervisor, last week Arroyo received 101,428 Coca-Cola shares issued as part of the share remuneration program for the 2020-2022 period and another 36,290 titles included in the incentive plan launched for the exit of the pandemic (called

Emerging stronger,

Coming out stronger).

Those 137,718 shares were valued at about 8.2 million at the time of delivery to the executive.

Of course, Arroyo immediately disposed of 58,875 titles, valued at about 3.5 million dollars, to face the tax consequences derived from those payments in shares.

In 2021, the latest figures available, the total remuneration of the Spanish manager at the top of Coca-Cola was about 7.5 million dollars.

The calculation of the shares for the purpose of calculating the annual remuneration and their effective delivery do not have to coincide.

That is, although those shares have now been delivered, they will probably partially compute as compensation for 2022.

For his part, Quincey James has also announced these days the receipt of 522,000 shares, valued at just over 31 million dollars.

James made about $25 million in 2021 from all accounts.

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Source: elparis

All business articles on 2023-02-22

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