Coca-Cola to reinvest tax savings in company, not employee bonuses

Coca-Cola will utilize benefits from the recent corporate tax reduction towards repaying company debt and returning cash to its shareholders.

According to the company's Chief Financial Officer Kathy Waller, Coca-Cola will not immediately realize the full benefits of the recent corporate tax rate reduction — from 35 percent to 21 percent — due to a $3.6 billion tax charge on the company's offshore earnings.

Waller said the charge to be paid up in eight years, could affect the company’s cash flow.

A Coca-Cola spokesperson could not specify how much the company will be saving from the tax reduction signed into law in December.

“We did not disclose annual expected dollar savings going forward,” he said in an email.

Unlike other U.S.-based businesses that have dished out bonuses to their employees following the tax revision, Coca-Cola will instead channel the savings back to its operations.

In January, Atlanta-based Home Depot announced a one time $1,000 bonus for its non-salaried employees. Atlanta Packaging also extended $1,000 bonuses for its full-time employees while Walmart increased wages for its hourly employees and bonuses for its employees with 20 years of service.

“We believe investments in our business to support growth is the best long-term use of any tax benefits,” said Waller.

While explaining the effects of the tax rate change on the company, Waller said at the previous 35% rate, the US tax rate was the highest among 35 other member states of the Organization for Economic Cooperation and Development, creating a competitive disadvantage for the company.

She said the new 21 percent rate would bolster the competitive edge of US-based companies against the global effective tax rate of 24%.

With the reforms, Coca-Cola can now transfer cash generated from its global operations back to the US without being subject to further taxation.

“Tax reform will make investing in the U.S. more attractive and should spur economic growth,” said Coca-Cola CEO James Quincey.

The company, which released its quartely results last week showing an annual 15 % decline in net revenues, hopes the tax reduction will eventually take effect, resulting in company growth.

Coca-Cola recently announced a 5.4 percent dividend increase for its shareholders and embarked on a rebranding effort, introducing new packaging and flavors to its Diet Coke brand aimed at attracting millenials.