Coca-Cola v. Commissioner: A Major IRS International Transfer Pricing Win

Beckett Cantley (Northeastern) & Geoffrey Dietrich, Coca-Cola v. Commissioner: A Major IRS Win in the International Transfer Pricing Wars, 25 Transactions: Tenn. J. Bus. L. 18 (2023):

In Coca-Cola v. Commissioner, the IRS won a major transfer pricing battle, successfully arguing that the Tax Court should apply the IRS’s pricing methodology over one of the methods recommended by Coca-Cola. The IRS argued the proper valuation methodology was the comparable profits method (“CPM”). Under the CPM, a court analyzes the profits of the company in question with the profits from an uncontrolled party. The court rejected the methodology recommended by Coca-Cola, leaving Coca-Cola with a significant tax liability. This decision opens the door for the IRS to pursue transfer pricing issues more aggressively and may affect other companies with pending transfer price cases, depending on how broadly other courts apply the holding in this case.

This article will first provide a brief introduction of the case and the basic principles of transfer pricing. Next, Part II of the article will discuss Coca-Cola v. Commissioner in-depth. This section will include a background into Coca-Cola’s unique business model, the arguments set forth by the IRS and Coca-Cola, and the findings and holdings of the Tax Court. Part III will examine several other transfer pricing cases that may be affected by the holding in Coca-Cola v. Commissioner. Finally, Part IV will conclude this article.

See also Reuven S. Avi-Yonah (Michigan) & Gianluca Mazzoni (S.J.D. (International Tax) 2020, Michigan), Coca-Cola: A Decisive IRS Transfer Pricing Victory, At Last, 169 Tax Notes Fed. 1739 (Dec. 14, 2020)

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