Coca-Cola is hitting the markets to raise €1bn, which could be used to help pay potential fines stemming from a decade-long dispute with US tax authorities that could cost the company $16bn, the Financial Times reported.
Coca-Cola: Colpogrosso with subsidiaries – How it hid its profits
The US giant said on Thursday it plans to issue €500 million in bonds with the proceeds used in part “to make potential payments in connection with our ongoing tax dispute with [Υπηρεσία Εσωτερικών Εσόδων]».
The bond issue comes a day after the Financial Times reported that Coca-Cola may owe $16 billion in back taxes from manufacturing operations in countries such as Ireland and Brazil.
The sum is enough to wipe out a year and a half of profits, with the amount growing by more than $1 billion annually.
The €1 billion it will bring to market this month will be split equally between two senior unsecured bonds with maturities of 13 and 29 years, and will also be used to pay Coca-Cola’s final payment in 2025 for the acquisition of Fairlife, a maker of ultra-filtered milk drinks. It will likely be used to pay down other outstanding debt.
big shot
According to the US Tax Court ruling, the company hid “astronomical levels” of profits in low-tax countries to protect them from US authorities.
Coca-Cola’s planned bond issue makes it the latest U.S. company to tap European bond markets this year, where borrowing costs for euro-denominated debt have been lower than for U.S. dollar-denominated debt.
US companies, including Johnson & Johnson and Booking Holdings, had raised a total of €30 billion in so-called reverse deals by May this year, according to Bank of America data.
Barclays, BNP Paribas and JPMorgan Chase are bookrunners for the deal, which will close on August 15.
The debt issuance comes as Coca-Cola prepares to pay an initial $6 billion in cash to cover unpaid taxes and interest for the years 2007 through 2009. The settlement, finalized last week, is the latest in a four-year series of court rulings in favor of the Internal Revenue Service.
The giant company will be able to appeal the ruling again if it wins the appeal, which it plans to launch later this year.
High stakes for Coca-Cola and the IRS
The stakes aren’t just high for Coca-Cola. The $16 billion could eat into the IRS’s annual budget and test the agency’s ability to track complex cases at a time when it has promised to toughen the fight against corporate tax evasion.
The $6 billion fine or the $10 billion it could owe over the next 15 years is unlikely to hurt Coca-Cola’s earnings in the short term.
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