The Tax Office Hacienda reckons Coca Cola is illegally evading Spanish taxes by dodgy accounting practices, and an independent tax tribunal TEAC has ruled that a full investigation is warranted.
However, at the same time, the TEAC said the investigation couldn’t go ahead, because it depended upon confidential information from third parties that couldn’t be shown to Coca Cola, and as such, any investigation would be on evidence the company couldn’t defend itself against, something that clearly runs contrary to Natural Justice (as defined for large multinational corporations, anyway).
Hacienda reckons Coca Cola has probably evaded paying around 100 million euros in Spanish taxes by falsely accounting for them as patent rights, rather than actual sales of a brand name product.
The company that makes Coke in Spain is supposed to pay Coke USA royalties for each bottle that’s sold. Said royalties are supposed to have 25% tax on them. But by dodgy accounting practices, and relabelling some royalties as R&D or consulting, the company is avoiding paying this 25%. Coke USA told Hacienda that the Spanish company didn’t have to pay any royalties on the brand name, which was lent to the Spanish subsidiary “for free” – Hacienda says that’s nonsense.
The TEAC agreed, pointing out that Coke’s marketing efforts in Spain never mentioned the quality of the product, but simply built the Coke brand, so it obviously has a value which Coke is then pretending it doesn’t, to avoid paying any tax on it.
Hacienda opened an investigation, and, supposedly, ran the numbers against competitors in the marketplace to see how they compared (Pepsi springs to mind, although no names are mentioned). Coke fared rather badly. Competitors are legally paying around 15% per bottle to the brand holder.
Coke Iberia is currently embroiled in a nasty fight with the unions and the press over plans to fire 1,250 workers, and close four factories, despite having record sales in Spain.