Judge Albert G (“Scholar Al”) Lauber answers the unanswered question left hanging in my blogpost “Block That Dividend,” 2/14/23, namely, did Brazilian law bar The Coca Cola Company (TCCC) from collecting $882 million in dividends from its Brazilian supply point, which had the cash (unlike Procter & Gamble, which didn’t)?

You’ll remember Brazil barred in-countrys from paying IP royalties to offshores above $56 million per year, but placed no limits on dividends (assuming E&P). And everyone agrees TCCC didn’t manipulate that enactment.

The Brazilian law changed, and TCCC trademarked different IP at different times (and didn’t trademark some at all). TCCC claims calling royalties dividends is dodging Brazilian law, but they did pay some (about half) of what IRS claims, and treated that as royalties. Judge Scholar Al says you can’t use half a dodge, and then claim you can’t use the rest when it suits you.

Then too, the lockout on royalties didn’t apply to every business, only to royalties paid to foreign controllers; royalties to uncontrollers could flow freely. So the foreign law countergambit to Section 482 via Reg. Section 1.482-1(h)(2)(i) fails for want of general applicability. And the grandfather saver of Reg. Section § 1.482-1(j)(4) doesn’t apply to a whole bunch trademarks (hi, Judge Holmes) which were registered after the magic date of the Reg., and doesn’t apply to an even bigger bunch other intangibles (ditto), like secret formulas, processes, and know-how.

Even as to the grandfathered IP, TCCC hasn’t shown the economic value thereof apart from the non-grandfathered. The Brazilians sold concentrate to bottlers, who marketed the stuff under the Coca Cola brands umbrella. The key for the Brazilian operation is manufacturing the product; valuable as the trademarks might be, you need to have stuff to sell under the trademarks.

Things don’t necessarily go better with Coke.

Oh yes, the opinion is The Coca Cola Company and Subsidiaries, T. C. Memo. 2023-135, filed 11/8/23.