Coca-Cola’s long-running transfer pricing dispute with the IRS reached oral argument before the U.S. Court of Appeals for the Eleventh Circuit on June 25, 2026, in Miami. The underlying dispute concerns tax years 2007–2009 and centers on how Coca-Cola allocated profits between its U.S. parent and foreign manufacturing affiliates — the “supply points” — in countries such as Brazil, Chile, Costa Rica, Egypt, Ireland, Mexico, and Swaziland.
The supply points paid royalties to the U.S. parent for the use of Coca-Cola’s intangible property (trademarks, formulas, and brand names). The IRS contends those royalties were too low and applied the Comparable Profits Method (CPM) to reallocate more than $9 billion of income to the U.S. parent. The Tax Court ruled for the IRS in 2020 (155 T.C. 145) and again in 2023 (T.C. Memo. 2023-135) on remaining Brazilian blocked-income issues. A final August 2024 Tax Court decision imposed approximately $2.7 billion in additional federal income tax for 2007–2009; with interest, Coca-Cola paid approximately $6 billion in late 2024 to stop further interest accrual. On appeal, the total amount at stake — including all post-2009 tax years through 2025 — reaches approximately $20 billion.
At oral argument, attorney Gregory Garre argued the IRS engaged in a “bait-and-switch”: Coca-Cola had relied on a 1996 closing agreement and subsequent IRS conduct as endorsing its prior transfer pricing methodology (the “10-50-50” split), but the IRS switched methodologies without notice. Judge Lagoa questioned the retroactive nature of the IRS’s conduct; Judge Abudu asked why the IRS challenged Coca-Cola’s arrangements in some countries but not others. The DOJ countered that retroactive enforcement is the norm in tax disputes and that Coca-Cola had opportunities to renegotiate. A ruling is expected within several months.
Key Arguments and Issues
- “Bait-and-switch” / reliance defense. Coca-Cola argues it relied on a 1996 IRS–Coke closing agreement and subsequent IRS conduct that endorsed the 10-50-50 profit-split methodology for royalties from supply points, and that the IRS’s adoption of CPM for 2007–2009 was arbitrary and without fair notice.
- Blocked-income regulations. Brazil limits the royalties a local subsidiary can pay to a U.S. parent. Under IRS Treas. Reg. § 1.482-1(h) (blocked-income regulations), the U.S. parent’s income can include the full amount that the affiliate would owe absent the limitation. Coca-Cola challenges these regulations as invalid after the Supreme Court’s 2024 Loper Bright ruling eliminated Chevron deference; the Eighth Circuit sided with 3M against the blocked-income rules in 3M Co. v. Commissioner (8th Cir. 2023), and Coca-Cola argues that ruling applies here.
- Circuit split potential. If the Eleventh Circuit upholds the IRS’s blocked-income regulations and the Eighth Circuit’s 3M ruling stands, a direct circuit split would emerge, increasing the likelihood of Supreme Court review.
- Retroactivity and enforcement norms. The IRS argues that retroactive tax enforcement is standard and that Coca-Cola had ample opportunity to seek advance pricing agreements or renegotiate. The panel pressed both sides on the limits of IRS authority to shift methodology after years of acquiescence.
- Downstream stakes. The 2007–2009 judgment controls the methodology for all post-2009 tax years. A Coca-Cola loss on appeal could add approximately $14 billion in additional taxes and interest for 2010–2025, plus a sustained increase in its effective tax rate.