Coca-Cola’s Irish bottling-concentrate affiliate reported a return on operating assets of roughly 215%. Its Chilean counterpart managed about 149%. The consolidated company, over the same stretch, earned approximately 53%. That gap is the heart of a tax fight with the IRS that has run for decades and is now before the Eleventh Circuit Court of Appeals, which heard oral arguments on June 25, 2026.
The dispute is described as an $18 billion matter, and it concerns how Coca-Cola splits profit between its U.S. parent and the foreign affiliates that manufacture beverage concentrate.
The 1996 formula
It starts with an IRS audit of the 1987 through 1995 tax years. To settle it, the agency and the company signed a closing agreement in 1996 built on what became known as the 10-50-50 method. Foreign supply points would take a 10% margin on concentrate sold to independent bottlers. Whatever profit remained would be divided evenly between the foreign affiliate and the U.S. parent.
Coca-Cola kept applying the formula. When the IRS examined 2007 through 2009, it threw the method out and used the Comparable Profits Method instead. That moved roughly $9 billion of income to the U.S. parent, about $2.7 billion in additional tax.
The Tax Court ruling
The Tax Court backed the IRS in 2020. Its reasoning was blunt. The 1996 agreement settled one dispute for specific years and said nothing about which method would apply afterward. Prior acceptance, in other words, bought no permanent protection.
The court also noted that the foreign supply points were outperforming nearly every food and beverage company in the world, while the U.S. entity that owned the intangibles behind that profitability earned far less.
If the appeal fails and the same approach is carried through the years since 2009, estimates of the company’s total exposure come to approximately $20 billion. Coca-Cola has reserved $493 million.
Why other companies are watching
The commentary behind this account comes from VSH, an accounting firm that advises multinationals on transfer pricing. Its reading is that the case shows the risk of leaning on old documentation. It advises annual reviews, and it says an allocation producing returns that a company’s operating footprint cannot explain “will read as profit shifting, whatever the method is called.”
The firm also noted that some observers expect the appellate court to be sympathetic to parts of Coca-Cola’s arguments. Whether that would change the result is open. As of the firm’s account, the appeal had not been decided.
