Image Credits: Los Angeles Times
The Tel Aviv District Court has ruled against Coca-Cola Israel, mandating that the company pay hundreds of millions of shekels in taxes related to royalty payments. This decision, issued on August 29 but previously under a publication ban, addresses allegations that the Central Bottling Co. (Coca-Cola Israel) avoided taxes through complex financial arrangements.
The court’s ruling, which came after years of legal battles, upholds the Israel Tax Authority’s assessment that Coca-Cola Israel owes taxes for royalty payments made between 2010 and 2017. These payments, intended for using Coca-Cola’s global trademarks and intellectual property, were deemed to have been improperly classified to evade tax obligations.
The ruling indicates that the payments, made under exclusive marketing agreements, should be categorized as royalties subject to tax. The Central Bottling Co., which has exclusive rights to market Coca-Cola products in Israel, had argued that it was purchasing a finished product and thus not liable for such royalties. However, the court found that the use of Coca-Cola’s global brand and intellectual property warranted royalty payments.
The decision marks a significant defeat for Coca-Cola Israel and is expected to result in substantial financial repercussions. In addition to the historical tax liability, the company will face ongoing future taxes estimated in the tens of millions of shekels annually. The Central Bottling Co. plans to appeal the ruling to the Supreme Court, prolonging the dispute.
The tax dispute, first reported by “Globes” in 2017, involves claims that Coca-Cola Israel used a method to avoid taxes on royalty payments to its international parent company. The Tax Authority discovered that payments were made to entities in Ireland and the Cayman Islands without appropriate tax deductions.
Judge Magen Altuvia’s ruling emphasized that the royalties were due due to Coca-Cola’s substantial brand value and the nature of the marketing agreements. The court rejected Coca-Cola Israel’s argument that the Tax Authority’s position, which had been consistent for years, was arbitrary and baseless.
Coca-Cola Israel has stated that it will challenge the ruling, highlighting its implications for international companies operating under global brands in Israel. The case will now proceed to the Supreme Court, where the final outcome will be determined.