The Coca-Cola CompanyKO recently stated in an SEC filing that it has received a notice from the Internal Revenue Service (IRS) regarding an unpaid federal income tax of approximately $3.3 billion plus interest.
The additional tax is related to a transfer pricing dispute that involves the reporting of Coca-Cola's U.S. income from foreign licensing of manufacturing, distribution, sale, marketing and promotion of its products in overseas markets. IRS claims that a five-year audit found that the cola giant's U.S. income for the period 2007-2009 was underreported.
According to Coca-Cola, the same methodology was followed for these licenses as agreed with the IRS in a 1996 agreement that applied back to 1987.
Coca-Cola believes that these "assessments are without merit" and will take the necessary administrative and judicial measures to resolve the matter. The company stated that the IRS has also recommended the matter for litigation. The company plans to file a petition with the U.S. Tax Court challenging the notice.
Last month, three of its European bottlers - Coca-Cola Enterprises, Inc. CCE , Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetränke AG - announced that they will merge to form a new Western European bottler - Coca-Cola European Partners. Coca-Cola European Partners will be the largest independent Coca-Cola bottler in term of revenues - combined pro-forma 2015 revenues of about $12.6 billion. CEO Muhtar Kent believes that the merger will help drive growth across Western Europe. This is the latest move under Coca-Cola's strategy of combining its smaller bottling operations to form larger companies to improve efficiency and cut costs.
The Coca-Cola Company carries a Zacks Rank #3 (Hold). A couple of better-ranked beverage stocks are Cott Corporation COT and Primo Water Corporation PRMW . While Primo Water sports a Zacks Rank #1 (Strong Buy), Cott Corporation has a Zacks Rank #2 (Buy).
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COCA-COLA ENTRP (CCE): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
COTT CORP QUE (COT): Free Stock Analysis Report
PRIMO WATER CP (PRMW): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
