👉 Background: The Coca-Cola Company is the global drink manufacturer and retailer behind Coca-Cola, Coke Zero, Vanilla Coke, Sprite, and Fanta. In Australia, the bottler of these drinks is a company called Coca-Cola Amatil.

👉 What happened: Now, the Australian Tax Office (ATO) is coming after The Coca-Cola Company and Coca-Cola Amatil (which is ~30% owned by The Coca-Cola Company). The ATO claims that they engaged in transactions that aimed to reduce their profits.

👉 What else: The ATO reckons The Coca-Cola Company was giving 'mates rates' to Coca-Cola Amatil for things like branding, trademarks, and formulas. And this amounted to more than $173 million in underpaid taxes for the 2018 and 2019 financial years. It's all part of the complex international tax structures and transfer pricing.

What's the key learning?

💡Transfer pricing relates to the prices of goods and services that are exchanged between inter-related companies.

💡For example, if The Coca-Cola Company licenses its recipe to Coca-Cola Amatil, the transaction needs to be done at "arms length". So the terms of the agreement should be the same regardless if the companies are related or totally separate entities.

💡The big question is what actually constitutes an 'arm's length' price? And this question often leads to disputes between companies and tax authorities.