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Coca-Cola Says IRS Wants $3.3 Billion In Additional Tax Following Audit

Coca-Cola bottles are displayed during a preview of the High Museum’s new exhibit, “The Coca-Cola Bottle: An American Icon at 100″, Wednesday, Feb. 25, 2015, in Atlanta. The exhibit, opening Feb. 28, explores the iconic design and creative legacy of the familiar soda bottle as art. (AP Photo/Branden Camp)

The Coca-Cola KO -2.63% Company announced today that it may owe $3.3 billion in additional federal income taxes. In a form 8-K filed with the U.S. Securities and Exchange Commission, the company revealed that following a five year audit for the tax years 2007 – 2009, the Internal Revenue Service (IRS) issued a Notice of Deficiency claiming an additional federal income tax liability of approximately $3.3 billion plus interest. No penalties have been assessed.

Coca-Cola stated that the additional tax is related to a transfer pricing dispute. Transfer pricing is a tricky concept affecting multinational corporations. In a typical scenario, a parent company may set up a number of subsidiary companies all over the world and move goods, services and assets from one to another. That’s completely okay. However, transactions between those companies are supposed to be at “arm’s length” meaning that the goods, services and assets are transferred for the same price as they would have been between unrelated parties. But often, that’s not what happens. With a wink...