Coca-Cola fights ATO over $170m in offshore tax

afr.com:

Beverages giant The Coca-Cola Company is fighting more than $170 million in taxes imposed by the Australian Tax Office, which alleges profits were diverted offshore via favourable deals with its local affiliate for branding, trademarks and formulas.

The ATO assessed The Coca-Cola Company (Coke) owes $173.8 million in diverted profits tax for the combined 2018 and 2019 years. The ATO issued two penalty notices to the global company in August 2022, for $85.2 million and $88.6 million respectively, which are now being challenged in the Federal Court of Australia.

Coca-Cola is facing another challenge to the deals it does with affiliates. AP

The diverted profits tax was passed by parliament in 2017 with the aim of clawing back money multinational companies were shipping offshore from their Australian operations without paying a fair level of local tax. The new tax set a 40 per cent tax on profits the ATO deemed were diverted offshore.

The US-based Coca-Cola Company owned just under 31 per cent of the ASX-listed Coca-Cola Amatil during the years assessed by the ATO. In 2021, Coca-Cola Amatil was acquired for $9.8 billion by Coca-Cola European Partners, whose largest shareholder with 19.2 per cent is The Coca-Cola Company.

The ATO assessed Coke had received a so-called diverted profit tax benefit because Coca-Cola Amatil did not pay Coke for the right to use intellectual property, thereby avoiding any liabilities related to royalty withholding tax.

The 2018 and 2019 accounts of The Coca-Cola Company and Coca-Cola Amatil were audited by big four firm EY.

Coke’s agreements with its foreign subsidiaries have faced scrutiny across the world, particularly around the deals it does to license its intellectual property, such as brand