‘We Intend to Contest That Vigorously,’ Yum Declares
“We disagree with the IRS’ position as asserted in the revenue agent’s report and intend to contest that position vigorously,” Yum said in a recent SEC filing.
The company’s efforts to resolve the matter through the IRS appeals process failed, leading to a notice of deficiency issued in March—and now, a full-scale tax court showdown.
Before the restructuring, Yum operated through four geographic regions, with the U.S. as one. Post-reorg, it shifted to a brand-centric structure, aligning its legal and financial reporting with its operational strategy.
The transformation created new holding companies for KFC and Pizza Hut, and Yum executed five tax-free reorganizations, exchanging shares for internal debt in a structure it maintains is both standard and legal in international business planning.
Tax Theory or Tax Trap? IRS Leans on Anti-Abuse Doctrine
Not stopping at the statute, the IRS also invoked its “substance-over-form” doctrine and an anti-abuse rule under the regulation, alleging that even if the structure looks clean on paper, its true effect was to shift untaxed income across borders—a move the IRS claims violates the spirit, if not the letter, of the law.
Yum’s legal team, led by attorneys from Mayer Brown LLP, is attacking on all fronts—challenging both the interpretation and the validity of the regulations used by the IRS to justify the assessment.
