COO Mimi Song Appears in Bloomberg Tax:
3M Case Marks Pathway for Coca-Cola’s
Transfer Pricing Victory

3M Case Marks Pathway for Coca-Cola’s Transfer Pricing Victory
October 21, 2025

Coca-Cola Co. may leverage a federal appeals court transfer pricing decision against the IRS in its dispute over taxes and interest tied to royalty payments to international affiliates.
The decision in a case involving 3M Co. determined that IRC Section 482 doesn’t necessarily grant the IRS power to reallocate income from overseas units to a US company for tax purposes.
The outcome of Coca-Cola’s case is uncertain due to subtle differences between the two cases, with some practitioners noting that the 3M case involved the Treasury Department’s “blocked income” rule, which is not present in Coca-Cola’s case.

Coca-Cola Co. has an opportunity to leverage a recent federal appeals court transfer pricing decision against the IRS in its own dispute over as much as $18 billion in taxes and interest tied to royalty payments to the beverage giant’s international affiliates.

In a case involving 3M Co., the US Court of Appeals for the Eighth Circuit earlier this month reversed the US Tax Court, determining that IRC Section 482 doesn’t necessarily grant the IRS power to reallocate income from overseas units to a US company for tax purposes.

The decision marked an upheaval in how courts interpret that provision, as the IRS has long asserted it had such authority.

Chad Martin, a principal of transfer pricing services at Eide Bailly LLP, says Coca-Cola stands to gain from the 3M decision, which showed that courts can and will step in to read vague tax code provisions.

That’s especially true for the “uniquely positioned” Section 482, a law that conveys broad IRS power to reallocate income without clear constraints in just a few sentences, he said.

The downstream effects could reach several other large, US-founded firms that are battling their own multi-billion-dollar transfer pricing disputes with the IRS over intellectual property they transferred to overseas affiliates, such as Meta Platforms Inc., Airbnb Inc., and Eaton Corp.

But some practitioners say subtle differences between the two cases suggest it may not be entirely smooth sailing for Coca-Cola.

In the 3M case, the IRS relied on the Treasury Department’s “blocked income” rule, which offers specifics on implementation of Section 482.

There are enough nuances between the tax code and the regulation that the 3M court felt it could step in and interpret the statute on its own, said Mimi Song, COO of tax compliance firm Exactera.

That’s not the case with Coca-Cola, she said.

Dueling Accounting Methods

Coca-Cola’s case centers on the IRS’s method for calculating and allocating tax based on payments to international affiliates for use of intangible property after a US parent or affiliate transfers the rights to them.

Coca-Cola investor materials published this summer estimated the IRS’s accounting method for the 2007 to 2009 tax years, with interest, would cost the company $6 billion, with an additional $12 billion if the US Court of Appeals for the Eleventh Circuit agrees that method should be applied to the 2010 to 2024 tax years as well.

The 3M ruling “confirms that the IRS’s allocation of royalties from the Brazilian supply-point company to The Coca-Cola Company above Brazilian legal limits must be set aside,” the beverage company told the Eleventh Circuit, where it’s litigating a decade-old transfer pricing dispute.

But unlike 3M, the dispute involves looking at functions, risks, and ownership of Coca-Cola’s intangibles, not regulatory restrictions on the IRS’s ability or inability to reallocate income to avoid tax evasion, Song said.

In other words, Coca-Cola’s position is rooted in the economic realities, not legal arguments, and that is materially different in a way that might cause the Eleventh Circuit to think differently than the Eighth Circuit, she said.

Coca-Cola’s dispute originates in a settlement with the IRS from an audit during its 1987-1995 tax years, where the company and agency agreed to a “10-50-50“ mechanism: earning a 10% margin on sales to independent bottlers, with residual profit split on a 50-50 basis.

The deal meant half the profits from manufacturing beverage concentrate would be considered earned by Coca-Cola’s supply point subsidiaries, and those international subsidiaries also would invest in marketing activities.

As a result, the IRS is looking at how much Coca-Cola’s Atlanta headquarters directed major international investments and whether the company properly valued property used by its international affiliates.

Coca-Cola says it relied on that agreement on a “go forward” basis, while the IRS argued it had no bearing on future tax years. After another IRS audit for 2007 to 2009, the company petitioned Tax Court, arguing it had a “reliance interest” to base its tax calculations on the settlement agreement indefinitely.

Loper Bright Factor

After losing at the US Tax Court Coca-Cola argued on appeal that last year’s US Supreme Court decision in Loper Bright Enterprises v. Raimondo requires the court to interpret Section 482 on its own without deferring to Treasury’s reading of the statute.

Loper Bright overturned the Chevron doctrine, which required courts to defer to agency interpretations of ambiguous laws.

In that respect, Coke benefits from the 3M court ignoring the blocked income rule entirely after finding the tax code should take precedence, Martin said.

“Coke recycled all their old arguments that lost in Tax Court, and Loper was their main new argument to the appeals court,” he said, adding that calling for a judicial interpretation of Section 482 was “the last arrow in the quiver they have” but is potentially a convincing argument.

“There are some economists that believe Coca-Cola’s defense should have been focused on looking for appropriate royalty rates for the licensing of IP instead of the 10-50-50 split,” Song said. “In which case, then the 3M decision might be more relevant.”

That’s not to say there’s no room for the Eleventh Circuit to reach its own conclusions about Section 482, said Justen Ghwee, director of international tax for Kaufman, Rossin & Co.

While 3M had a stronger argument considering the regulatory realities around its payments, Coca-Cola’s case also gives the Eleventh Circuit its own first chance to consider how it reads Section 482 post-Loper Bright, he said.

It’s hard to predict if those appellate judges will have foundational questions about what the tax code allows the IRS to do, he said.

“Even if they had similar fact patterns, the courts might still come up with different interpretations given how brief the language is,” Ghwee said.

Skadden Arps Slate Meagher & Flom LLP and Latham & Watkins LLP represent Coca-Cola.

To contact the reporter on this story: Tristan Navera in Washington at tnavera@bloombergindustry.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloombergindustry.com; Amy Lee Rosen at arosen@bloombergindustry.com

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