Pepsi Set Up Affiliate to Avoid Taxes, Illinois Court Affirms

PepsiCo Inc. created a foreign affiliate as a shell company just to avoid state taxes, an Illinois appeals court ruled Wednesday, upholding a $10.9 million state income tax bill.

Pepsi asked the Illinois Appellate Court, Fourth Judicial District, to reverse the trial court’s ruling that income from the company’s snack food subsidiary Frito-Lay North America Inc. should have been included on Pepsi’s state tax returns. The court declined, holding that the “evidence clearly showed that state tax avoidance was plaintiffs’ only reason” for forming PepsiCo Global Mobility LLC with FLNA as its sole member.

“The proverbial nail in the ...