The Eleventh Circuit shouldn’t use 3M Co.'s recent tax case victory to give Coca-Cola Co. a win in the company’s transfer pricing position being disputed with the IRS, the Department of Justice argued for the tax agency in a new filing.
Coca-Cola has argued in filings with the court and financial disclosures that 3M’s October win in the US Court of Appeals for the Eighth Circuit bolsters its case against the IRS.
The beverage juggernaut had to pay $6 billion in unpaid tax plus interest after losing in US Tax Court and could be liable for an additional $14 billion for subsequent years if it loses its case on appeal at the Eleventh Circuit.
The Eighth Circuit’s ruling for 3M reversed and remanded a Tax Court decision after determining that I.R.C. Sec. 482, which governs transfer pricing rules, didn’t grant the IRS the power to tax income from a Brazilian subsidiary that 3M couldn’t legally receive under Brazilian law. Coca-Cola has argued that it is similarly limited under Brazilian law.
The DOJ disputed that position in Wednesday’s filing. The company misallocated income to foreign subsidiaries, including a Brazilian subsidiary, it told the Eleventh Circuit.
“Coca-Cola seeks to avoid a proper allocation of income as to that subsidiary by relying on a Brazilian law limiting the amount of money transferred to a related party as ‘royalties’ for purposes of Brazilian taxes,” the filing said. “However, as shown by Coca-Cola’s own actions, this law does not bar paying dividends, or treating those dividends as ‘royalties’ for purposes of U.S. taxes.”
The case citation is Coca-Cola Co. v. Commissioner , 11th Cir., No. 11th Cir., No. 24-13470.