Australia’s IP Royalties Tax Stance Leaves Multinationals Wary

Multinational companies should check their governance of related-party contracts, given Australia’s controversial stance on taxing intellectual property royalties, tax professionals say.

The Australian Taxation Office’s response to the High Court’s ruling in the case it lost last August to PepsiCo Inc. shows the agency will continue “its highly proactive agenda” on taxing intangible assets like IP, focusing on royalty payments to offshore IP holders, said Mallesons tax partner Michael Clough.

The High Court ruled last August in PepsiCo that a bottler’s payments for concentrate didn’t include “embedded royalties,” and so weren’t liable for withholding tax or diverted profits ...