An analysis by Corrs Chambers Westgarth, Taxand Australia
The Australian Commissioner of Taxation has applied for special leave to appeal to the High Court regarding a previous Federal Court decision in the case of PepsiCo, Inc v Commissioner of Taxation. The decision in question ruled in favour of PepsiCo, exempting the company from Royalty Withholding Tax and Diverted Profits Tax (DPT) for certain cross-border IP licensing arrangements.
The appeal focuses on the taxation of intellectual property, specifically royalties, and DPT. The Commissioner disputes the interpretation of royalty payments under PepsiCo’s licensing agreements and whether PepsiCo should pay withholding tax or DPT on these payments.
The Commissioner has argued that the majority judgment misinterpreted the concept of “consideration” and that key tax disputes will be affected by the outcome, and the Australian Taxation Office has deferred finalising a tax ruling pending this decision.
Experts from our Australian member firm, Corrs Chambers Westgarth have analysed this decision in further detail here, which is significant for both Australian companies and global corporations with similar arrangements, as it clarifies how royalties and intangible assets are taxed.
You can also read Taxand Australia’s analysis of the original judgement here.
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