Coca-Cola paid tax on 1.4% on Irish profits of up to $2.5bn – US court

Coca-Cola paid a tax rate of just 1.4 per cent in Ireland in 2007-2009 on operating profits of $2 billion-$2.5 billion per annum, according to a judgment published by the US tax court this week,

It found that Coca-Cola’s operations in Ireland were central to a scheme the company used to cut its tax bill between 2007 and 2009, in a manner the court found to contravene America tax law.

Coca-Cola may now have to pay the bulk of a previously assessed $3.4 billion (€2.87 billion) tax bill, although the company has said it will will “vigorously defend” its position and consider whether to appeal.

The judgment showed the massive profits booked in Ireland by the company during the period, amounting to just over $7.2 billion over the three years. The judgment said the Irish operation “reported an income tax rate of 1.4 per cent during the period at issue”.

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It is not clear how it structured itself to achieve such a low rate, far below the 12.5 per cent headline rate.

The court this week upheld the case of the Internal Revenue Service (IRS) that the company had allocated too much profit to overseas subsidiaries in lower tax jurisdictions, particularly Ireland and Brazil, dismissing an appeal by the company.

Ballina plant

The IRS found that the overseas subsidiaries should have been obliged to pay the parent company more for the use of intellectual property – trademarks , patents and copyrights – used in the production of concentrate for its products. By not doing so, profits were inflated in overseas operations and less profit was booked in the US.

In Ireland the company’s main concentrate manufacturing plant has been in Ballina. It says the Irish subsidiary should have paid the US parent more than $6.1 billion in additional royalty payments over the period.

The judgment shows that in 2001 the company had shifted half its concentrate production from its Mexican manufacturer to Ireland, with the product then shipped back to the Mexican market.

The company “directed numerous other shifts of production to the Irish supply point between 1984 and the tax years at issue”, the judgement said and by the 2007 to 2009 period was supplying bottlers in 90 markets from Ireland.

The strategies multinationals use to “shift” profit via transfer pricing is one of the key areas of debate in international corporate tax reform. Rules have tightened significantly in this area in recent years.