The Coca-Cola Co. is set to sell €1bn ($1.09bn) in new debt and use part of the proceeds for potential payments to its ongoing tax litigation case with the US Internal Revenue Service (IRS).
In an SEC filing yesterday (8 August), the Sprite and Fanta brands owner said it planned to issue two €500m bonds which will add to the $7bn of new borrowing by the company this year.
It added that a portion of the sum would be used for "making any potential payments in connection with our ongoing tax litigation with the United States Internal Revenue Service".
Last week, the soft drinks giant said it was set to appeal a US court decision which reflects a liability of approximately $2.7bn. This is expected to rise to around $6bn when accounting for interest, according to Coca-Cola.
According to The Financial Times, Coca-Cola could in fact owe up to $16bn in back taxes due to some manufacturing processes located in countries such as Ireland and Brazil.
The publication reported that a US tax court judgment found that Coca-Cola has been hiding “astronomical levels” of profit in low-tax countries to shield it from the US authorities.
The €1bn issuance is known as a “reverse Yankee”, where US-based companies raise money in Euro or Sterling bond markets. The move allows American companies to take advantage of central bank monetary policies in different regions.
In an earnings call last month, chief financial officer John Murphy said Coca-Cola had raised around $4bn in cash to help finance its acquisition of Fairlife, first announced in 2020. Murphy also said the sum “may include pre-funding upcoming payments related to the IRS tax case”.
Coca-Cola is preparing to pay the initial $6bn to cover unpaid taxes and interest for the years 2007 to 2009 through the debt issuance, after the US Tax Court reached a decision last week.
In September 2015, the Sprite and Fanta brands owner first received a notice from the IRS seeking around $3.3bn of additional federal income tax for years 2007 through 2009.
According to the drinks company, “the IRS stated its intent to reallocate over $9bn of income to the US parent company from certain of its foreign affiliates retroactively, rejecting a previously agreed upon methodology without prior notice to the company”.
The following month, the IRS pointed the dispute toward litigation and then in 2020, the Tax Court voiced its opinion in favour of the IRS.
Last November, the Tax Court issued a second related opinion also siding with the IRS on the remaining issue.
Coca-Cola said last week: “The company believes it will prevail on appeal with respect to the issues raised in both the 2020 and 2023 Tax Court opinions.”
