Case Study
Read the Case Study: A Different Type of Cola War: Coca Cola versus the IRS Download A Different Type of Cola War: Coca Cola versus the IRS. This case study focuses on transfer pricing, including why companies and tax jurisdictions care about transfer pricing, the alternatives available for setting transfer prices, and the importance of tax planning for multinational corporations. You will also evaluate the ethical considerations associated with shifting profits to low-tax jurisdictions.
The Case Study you will see has 13 requirements. Please answer in your Project submission the following specific requirements:
- Describe the concept of transfer pricing.
- Explain how Coca-Cola’s transfer pricing policy was, in effect, a tax planning strategy.
- How did Coca-Cola allocate profits between the parent and syrup subs?
- Why is transfer pricing between a parent and subsidiary important if GAAP mandates the elimination of intercompany transactions in consolidation?
- Identify differences between allocation of profits attributable to tangible versus intangible assets.
- How well did the Coca-Cola company balance its responsibility to maximize shareholder value and its responsibility to fulfill its tax obligations to the government?
- Critique the appropriateness of Coca-Cola’s allocation of profits between the parent and foreign subsidiaries.
- Evaluate Coca-Cola’s original allocation of profits (10-50-50 method) between the parent and subsidiary against the requirements of I.R.C. § 482 and Treas.Reg. § 1.1502-13(b)(1).
- Explain the IRS’ proposed method of profit allocation for Coca-Cola and discuss why this is an appropriate methodology under I.R.C. § 482 and Treas.Reg. § 1.482-1(c).
- Was there a business purpose associated with Coca-Cola’s allocation of profits to Brazil and Ireland?
- Describe how a tax court might evaluate “excessive profits” when determining the appropriateness of a transfer-pricing policy.
- Should the IRS’ role be to enforce the tax code as it is written, or should they be able to determine matters of public policy?
- Was the IRS justified in determining Coca-Cola was not paying enough U.S. federal income tax?
Final Project Submission Requirements:
You should submit your written report in a Word document for your instructor to grade your final project submission. Please copy and paste each requirement (single spaced) into the Word document in bold type with your answers directly below each requirement.
The written report should be submitted in a Word document with a Title Page, a Reference page containing at a minimum 5 outside authoritative references, double-spaced, Times New Roman 12-font, and should be a minimum of 6 pages in length excluding the Title and Reference pages. Submissions in excess of 6 pages are acceptable. Your report should be addressed to the Manager of International for his/her information.
