Israel’s Tax Authority will reportedly demand ILS 160 million ($45 million) from Coca-Cola in a row over royalties paid by its local bottling partner.
According to the Israeli financial daily Calcalist, the bill is based on more than ILS 1 billion of royalties paid by Central Bottling Corporation over several years. The royalties are paid by Coca-Cola’s regional bottlers for the licensing of the Coca-Cola brand name in their particular territory.
In Israel’s tax system, the royalties would usually be taxed at source – but Coca-Cola itself has no local presence in Israel. For beverage manufacturers, the rate of tax on trademark royalties is currently 15%.
The bill could still be deducted from Central Bottling Corp’s income as, with no headquarters in Israel, Coca-Cola falls outside the tax authority’s jurisdiction. Central Bottling Corp has been Coca-Cola’s local bottling partner in Israel since 1968 and is a joint venture between companies controlled by the children of Israeli businessman Mozi Wertheim, who died last year.
It turned over around ILS 2 billion ($559 million) last year, while Coca-Cola’s second-quarter revenue fell 16% year-on-year to $9.7 billion. Gross profit was 14.5% lower at $6.04 billion, and operating income fell 27% to reach $2.08 billion.
The Atlanta-based company has reportedly hired an Israel-based law firm, Goldfarb Seligman, to contest the charges.
According to Calcalist, it could be difficult for the tax body to effectively pursue the $45 million claim, as many multinational companies dispute the nature of franchise royalties or claim that the payments are a form of business advertising.
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