Australia PepsiCo Royalty Case Will Shape Software Tax Approach

Australia’s top court is about to take up a key case involving PepsiCo and royalty taxes, and the outcome promises to shake up the way software makers are taxed, among other industries.

At issue before the High Court of Australia is whether PepsiCo owes taxes on royalties that authorities contend are “embedded” in cross-border transactions to make and sell its beverages in Australia. A lower court sided with the company and said PepsiCo didn’t owe royalty taxes, while the Australian Taxation Office maintains it does.

The impact of the High Court’s decision will extend far beyond the taxes that one ...