Tax Treaty Case Law around the Globe 2021

S. 130I. Introduction

Coca-Cola v. Commissioner stands out as a significant, USD 9 billion transfer pricing case tied to intercompany royalties. It is one of very few Internal Revenue Service (IRS) victories in litigating transfer pricing issues and constitutes an exceptional transfer pricing case due to the tax court’s full elaboration on its reasoning. The issue arose over the arm’s-length pricing of intangible-related income and the application of the arm’s length standard to unique group arrangements and comparables that are difficult or impossible to find. As is often the case in the United States, the case was decided solely based on domestic (transfer pricing) law without regard to potential treaty implications. Beyond the rare win for the tax authorities, the importance of the case is in the (also rare) willingness of the court to examine the true economics of the tested arrangement and not limit itself to the dogmatic, literal view of the arm’s length standard that typified its past decisions.

II. Facts of the Case

Coca-Cola Co. (Coca-Cola), a US corporation, is the legal owner of intangibles such as trademarks, product names, logos, patents, secret formulas, and proprietary manufa...