Transfer Pricing: The Explosive Case of Coca-Cola

ABSTRACT Spurring several years of litigation, The Coca-Cola Company (Coca-Cola) claims that its formerly accepted, long-standing transfer pricing method should still be accepted by the Internal Revenue Service (IRS). The IRS counters that the company’s method is antithetical to Section 482 of the Internal Revenue Code, since it inappropriately distributes income to lower tax foreign jurisdictions and forgoes the arm’s length standard between controlling and subsidiary entities. After taking the dispute to the U.S. Tax Court, decisions in both 2020 and 2023 upheld the IRS’ position. Having already paid $6 billion in back taxes and interest, Coca-Cola aims to avoid a possible additional $12 billion deficiency should the decisions stand on appeal. By examining the arguments presented and the Court’s decision process, this paper aims to enhance forensic accountants’ knowledge regarding appropriate transfer pricing strategies. Such knowledge may improve the effectiveness of their analyses if involved in transfer pricing disputes. JEL Classifications: H26; K34.