PepsiCo Inc. is making a last-ditch effort to overturn a $2.1 million tax penalty, urging the Illinois Supreme Court to reverse a string of lower court decisions that accused the food and beverage titan of misclassifying expatriate compensation to avoid paying millions in state income taxes.
In a petition filed Wednesday, the company argued that a trio of lower rulings — from the Illinois Tax Tribunal, a trial court, and an appellate panel — misinterpreted its use of a global employment company and set dangerous precedent for how multinational corporations structure global workforce mobility.
At the heart of the dispute: PepsiCo’s use of PepsiCo Global Mobility LLC (PGM), which the courts labeled a “shell company”, in an effort to exclude Frito-Lay’s profits from combined state tax returns using the 80/20 rule — a provision that allows exclusion of subsidiaries with 80% or more of their business abroad.
The $10.9M Twist Behind a $2.1M Penalty
The Illinois Department of Revenue concluded that PepsiCo’s setup wrongly excluded millions in payroll tied to expatriates — workers temporarily assigned abroad — under the guise of foreign employment. As a result, the courts said the company underreported its Illinois tax burden by $10.9 million, triggering the $2.1 million in penalties.
PepsiCo’s counter? This wasn’t a tax dodge but a legitimate business structure. The company insisted the courts ignored the fact that PGM manages real employees performing real work, and that the employment model is commonly used by corporations with international footprints.
“This case presents far more than a niche tax squabble,” PepsiCo wrote. “It opens a front on whether multinational employers can reasonably structure expatriate programs without being penalized.”
