By Dave Sebastian
Coca-Cola Co. said it has tapped J. Michael Luttig, a former U.S. federal judge and general counsel for Boeing Co., as its counselor and special adviser to the company for its ongoing litigation with the U.S. Internal Revenue Service.
Mr. Luttig served on the U.S. Court of Appeals from 1991 to 2006. At Boeing, he handled legal matters associated with accidents involving the 737 MAX aircraft.
A judge in U.S. Tax Court in November ruled that the soda giant placed too much of its profit in its foreign operations instead of its higher-taxed domestic parent company. The IRS had been seeking more than $3.3 billion for the tax years 2007 through 2009. The cost to Coca-Cola could be more if the government applies the same rationale to subsequent tax years.
“The company intends to vigorously defend its position and consider all avenues, including appealing any ultimate decision,” Coca-Cola said Wednesday.
The dispute stemmed from Coca-Cola’s subsidiaries in countries including Brazil, Ireland and Egypt. Those operations produce syrups and other ingredients for use in the company’s beverages.
Especially before the 2017 U.S. tax law cut the corporate tax rate, U.S. companies had an incentive to pack profits into low-tax countries and defer U.S. taxes on those profits rather than attribute earnings to the U.S. parent, which faced an immediate 35% rate.
Companies within a single corporate structure are supposed to allocate profits between the parent and a foreign subsidiary based on what unrelated companies would do in an equivalent arm’s length transaction. But there are plenty of gray areas, especially when companies profit from mobile, intangible assets like trademarks and patents. The IRS regularly engages in protracted legal fights with corporations over how those rules should apply in each situation.
Mr. Luttig, in a Wednesday statement, said Coca-Cola for 20 years reported U.S. taxable income from its non-U.S. operations under a methodology agreed to by the IRS.
“American companies cannot run their businesses with the uncertainty of the retroactive application of newly minted IRS tax policies to prior tax years that are contrary to the IRS’ own previously approved policies and then be required to pay billions of dollars in unanticipated increased taxes that result from the retroactive application of these new tax policies,” Mr. Luttig said.
–Richard Rubin contributed to this article.
Write to Dave Sebastian at [email protected]
(END) Dow Jones Newswires