The Coca-Cola Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES (Tables)

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2019

Income before income taxes consisted of the following (in millions):



Year Ended December 31,	2019		2018		2017
United States	$	3,249	$	888	$	(690	)	¹
International	7,537		7,337		7,580
Total	$	10,786	$	8,225	$	6,890

¹Includes net charges of $2,140 million related to refranchising certain bottling territories in North America in 2017. Refer to Note 2.

Schedule of income tax expense (benefit)

Income taxes consisted of the following (in millions):



	United States				State and Local				International				Total
2019
Current	$	508			$	94			$	1,479			$	2,081
Deferred	(65		)		52				(267		)		(280		)
2018
Current	$	591		¹	$	145			$	1,426			$	2,162
Deferred	(386		)	¹	(81		)	¹	54			¹	(413		)
2017
Current	$	5,438		²	$	121			$	1,300			$	6,859
Deferred	(1,783		)	^2,3	14				517			²	(1,252		)

¹ Includes the tax impact that resulted from changes to our original provisional estimates of the impact of the Tax Reform Act as permitted by Staff Accounting Bulletin No. 118 ("SAB 118").

²Includes our reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax resulting from the Tax Reform Act that was signed into law on December 22, 2017. The provisional amount as of December 31, 2017 related to the one-time transition tax on the mandatory deemed repatriation of prescribed foreign earnings was $4.6 billion of tax expense based on cumulative prescribed foreign earnings estimated at that time to be $42 billion. The provisional amount that was primarily related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was a net deferred tax benefit of $1.0 billion.

³ Includes the net tax benefit from net charges related to refranchising certain bottling territories in North America. Refer to Note 2.

Reconciliation of the statutory U.S. federal tax rate and effective tax rates

A reconciliation of the statutory U.S. federal tax rate and our effective tax rate is as follows:



Year Ended December 31,	2019			2018			2017
Statutory U.S. federal tax rate	21.0	%		21.0	%		35.0	%
State and local income taxes — net of federal benefit	0.9			1.5			1.1
Earnings in jurisdictions taxed at rates different from the statutory U.S. federal tax rate	1.1		^1,2,3	3.1		^5,6	(9.5	)
Equity income or loss	(1.6	)		(2.5	)		(3.3	)
Tax Reform Act	—			0.1		⁷	52.4		⁸
Excess tax benefits on stock-based compensation	(0.9	)		(1.3	)		(1.9	)
Other — net	(3.8	)	⁴	(0.6	)		7.6		^9,10
Effective tax rate	16.7	%		21.3	%		81.4	%

¹Includes net tax charges of $199 million (or a 1.9 percent impact on our effective tax rate) related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties, in various international jurisdictions, as well as other agreed-upon tax matters.

²Includes the impact of pretax charges of $710 million (or a 1.2 percent impact on our effective tax rate) related to the impairment of certain of our equity method investees.

³Includes a tax benefit of $199 million (or a 1.5 percent impact on our effective tax rate) recorded as a result of CCBA no longer qualifying as a discontinued operation. Refer to Note 2.

⁴Includes a net tax benefit of $184 million (or a 1.7 percent impact on our effective tax rate) related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties, a tax benefit of $145 million (or a 1.4 percent impact on our effective tax rate) related to changes in our assessment of certain valuation allowances and a net tax benefit of $89 million (or a 0.8 percent impact on our effective tax rate) related to domestic return to provision adjustments as well as other agreed-upon tax matters.

⁵Includes the impact of pretax charges of $591 million (or a 1.5 percent impact on our effective tax rate) related to other-than-temporary impairments of certain of our equity method investees and the impact of a pretax charge of $554 million (or a 1.9 percent impact on our effective tax rate) related to an impairment of assets held by CCBA. Refer to Note 18.

⁶Includes net tax expense of $28 million on net pretax charges of $403 million (or a 1.4 percent impact on our effective tax rate) primarily related to the refranchising of certain foreign bottling operations. Refer to Note 2.

⁷Includes net tax expense of $8 million (or a 0.1 percent impact on our effective tax rate) related to the finalization of our accounting related to the Tax Reform Act.

⁸Includes net tax expense of $3,610 million primarily related to our reasonable estimate of the one-time transition tax resulting from the Tax Reform Act that was signed into law on December 22, 2017, partially offset by the impact of the lower rate introduced by the Tax Reform Act on our existing deferred tax balances.

⁹Includes net tax expense of $1,048 million on a pretax gain of $1,037 million (or a 9.9 percent impact on our effective tax rate) related to the Southwest Transaction, in conjunction with which we obtained an equity interest in AC Bebidas. The Company accounts for its interest in AC Bebidas as an equity method investment, and the net tax expense was primarily the result of the deferred tax recorded on the basis difference in this investment. Refer to Note 2.

¹⁰Includes a $156 million net tax benefit related to the impact of manufacturing incentives and permanent book-to-tax adjustments.

Reconciliation of changes in the gross amount of unrecognized tax benefit

A reconciliation of the changes in the gross amount of unrecognized tax benefits is as follows (in millions):



Year Ended December 31,	2019				2018			2017
Balance of unrecognized tax benefits at the beginning of year	$	336			$	331		$	302
Increase related to prior period tax positions	204			¹	11			18
Decrease related to prior period tax positions	—				(2		)	(13		)
Increase related to current period tax positions	29				17			13
Decrease related to settlements with taxing authorities	(174		)	²	(4		)	—
Increase (decrease) due to effect of foreign currency exchange rate changes	(3		)		(17		)	11
Balance of unrecognized tax benefits at the end of year	$	392			$	336		$	331

¹The increase was primarily related to a change in judgment about the Company's tax positions with several foreign jurisdictions.

²The decrease was primarily related to a change in judgment about one of the Company's tax positions that became certain as a result of settlement of a matter in the United States.

Deferred tax assets and liabilities

The tax effects of temporary differences and carryforwards that give rise to deferred tax assets and liabilities consisted of the following (in millions):



December 31,	2019			2018
Deferred tax assets:
Property, plant and equipment	$	53		$	64
Trademarks and other intangible assets	2,267			2,540
Equity method investments (including foreign currency translation adjustments)	372			315
Derivative financial instruments	389			322
Other liabilities	1,066			791
Benefit plans	880			881
Net operating/capital loss carryforwards	259			341
Other	311			230
Gross deferred tax assets	5,597			5,484
Valuation allowances	(303		)	(419		)
Total deferred tax assets	$	5,294		$	5,065
Deferred tax liabilities:
Property, plant and equipment	$	(877	)	$	(922	)
Trademarks and other intangible assets	(1,533		)	(1,179		)
Equity method investments (including foreign currency translation adjustments)	(1,667		)	(1,707		)
Derivative financial instruments	(348		)	(162		)
Other liabilities	(351		)	(67		)
Benefit plans	(286		)	(255		)
Other	(104		)	(453		)
Total deferred tax liabilities	$	(5,166	)	$	(4,745	)
Net deferred tax assets	$	128		$	320

Deferred tax asset valuation allowances

An analysis of our deferred tax asset valuation allowances is as follows (in millions):



Year Ended December 31,	2019			2018			2017
Balance at beginning of year	$	419		$	519		$	530
Additions	148			83			202
Deductions	(264		)	(183		)	(213		)
Balance at end of year	$	303		$	419		$	519