Tax Notes Quotes David Rosenbloom on Coca-Cola's Transfer Pricing Dispute

If the IRS applies the transfer pricing method approved by the Tax Court to the Coca-Cola Co.’s post-2009 tax years, the total liability in its U.S. transfer pricing dispute could reach $12 billion.

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The company has previously signaled its resolve to continue litigating the dispute by announcing its hiring of J. Michael Luttig, a former judge for the Fourth Circuit. It makes sense that an appeal spearheaded by Luttig, who is not known for specializing in highly technical transfer pricing cases, would focus on this constitutional argument, according to David Rosenbloom of Caplin & Drysdale. But Rosenbloom expressed skepticism regarding Coca-Cola’s prospects of success, noting that the dispute does not feature any of the arguably retroactive aspects of the Tax Cuts and Jobs Act.

“I don’t think there’s much of a constitutional case against retroactivity, but the [Coca-Cola] case isn’t even retroactive,” Rosenbloom said. “And moreover, relying on a closing agreement that by its terms didn’t apply after the years to which it formally applied — that’s what the judge they’ve brought in is going to argue — I find that kind of crazy. If the IRS is put in a position of saying once it goes into a closing agreement . . . it’s bound forever by what it does in the closing agreement, you’re not going to see any more closing agreements.”

Rosenbloom also noted that, in his experience, the IRS rarely completely reverses its position without at least informally indicating that it was likely to do so.

“The IRS generally — there are always exceptions — doesn’t do 180-degree turns on something like that without giving some kind of a signal. It might have been very informal,” Rosenbloom said. “Their international examiner might have talked to the international person at Coke and said, '[The IRS] is having second thoughts about this.'”

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