Multinational contracts must reflect arm’s-length pricing to avoid tax risk 20 min read
In the first case of its kind, the High Court has rejected an attempt by the Australian Taxation Office (ATO) to impose royalty withholding tax and diverted profits tax on a so-called royalty for the use of intellectual property alleged to be 'embedded' in payments for goods made between independent parties.
The landmark ruling establishes that contractual allocations of consideration between separate monetary and non-monetary promises should be accepted for tax purposes, provided they reflect an arm's-length dealing. In doing so, it provides greater tax certainty for multinational groups engaged in cross-border transactions, most notably those in the pharmaceutical, technology and manufacturing industries.
In this Insight, we unpack the High Court’s reasoning, and assess its impact on contractual drafting, tax risk and future ATO enforcement for tax and legal teams managing global IP structures.
Key takeaways
- Multinational groups dealing with independent third parties in relation to the use of intellectual property should ensure their dealings are conducted at arm's length and for arm's-length prices. To do otherwise, including to be indifferent to contractual allocations of consideration, risks the ATO arguing that payments—even wholly within Australia—contain 'embedded royalties' subject to tax.
- Despite being the first diverted profits tax case, the High Court's ruling focused on the 'tax benefit' concept that also applies in the general anti-avoidance rule. In holding that taxpayers can discharge their onus by proving there is no reasonable counterfactual, the Court may have made it easier for taxpayers to succeed in certain types of anti-avoidance cases.
- The decision also has additional implications for the tax treatment of umbrella or global agreements, the draft public ruling regarding the application of royalty withholding tax to software arrangements, previously announced but unenacted anti-avoidance measures, as well as the effect of double tax agreements in Australia.
Who in your organisation needs to know about this?
Heads of Tax; Tax Managers; Intellectual Property Counsel.
Factual and procedural background
Factual background
Two companies incorporated in the United States of America (US), PepsiCo, Inc. (PepsiCo) and Stokely-Van Camp, Inc. (SVC), each entered into an Exclusive Bottling Appointment or Agreement (Agreements) with an Australian company, Schweppes Australia Pty Ltd (Schweppes), pursuant to which PepsiCo/SVC appointed Schweppes as their exclusive licensee obliged to manufacture, bottle, sell and distribute certain carbonated soft drinks and non-carbonated beverages in Australia.
Under the Agreements, PepsiCo/SVC agreed to sell, or cause one of its subsidiaries to sell, flavour concentrate to Schweppes to be used to produce the beverages (eg Pepsi, Mountain Dew and Gatorade). PepsiCo/SVC also granted Schweppes an implied or express licence or right to use in Australia trademarks, designs and other intellectual property to enable Schweppes to fulfil its obligations to bottle, sell and distribute PepsiCo group branded beverages (including obligations to build the brands of PepsiCo/SVC in Australia).
The Agreements expressly provided for Schweppes to pay for the concentrate, but did not expressly provide for the payment of a royalty for the right to use the intellectual property (indeed, one Agreement stated the licence was royalty-free). Pursuant to the Agreements, PepsiCo/SVC nominated a member of their group that was an Australian incorporated company, PepsiCo Beverage Singapore Pty Ltd (PBS), to supply the concentrate, which it did under a separate contract subsequently entered into with Schweppes. As a result, Schweppes paid PBS, not PepsiCo/SVC, for the concentrate.
Dispute over embedded royalty
The Commissioner of Taxation (Commissioner) asserted that the concentrate payments included an embedded royalty component that was paid for the use of the intellectual property and issued PepsiCo/SVC with royalty withholding tax determinations and diverted profit tax assessments. PepsiCo/SVC commenced Federal Court proceedings to have the assessments set aside.
This required the court to determine whether:
- the concentrate payments were 'consideration for' the use of intellectual property and, if so, whether those payments were 'income derived' by PepsiCo/SVC, in which case they would be liable to royalty withholding tax; and
- if not, PepsiCo/SVC had obtained a 'tax benefit' (ie not receiving taxable royalties) under a scheme (ie the Agreements) and whether doing so was one of their 'principal purposes' in entering and carrying out the Agreements, in which case they would be liable for diverted profits tax.
Federal Court proceedings
At first instance, Justice Moshinsky held that the payments Schweppes made were to some extent royalties because they were consideration for the use of intellectual property, which constituted income derived by PepsiCo/SVC or amounts to which they were beneficially entitled. PepsiCo/SVC were thus liable to pay 5% royalty withholding tax on the royalty component, which—based on expert evidence—was slightly less than 5.88% of net revenue from sales.
In the alternative, Justice Moshinsky held that, had royalty withholding tax not applied, PepsiCo/SVC would have been liable for diverted profits tax on the basis that each obtained a tax benefit (ie not receiving taxable royalties) under a scheme (ie the Agreements) and that one of the principal purposes of each in carrying out the scheme was to obtain a tax benefit (ie not being liable to pay Australian royalty withholding tax) or to both obtain an Australian tax benefit and to reduce US income tax.1
A majority of the Full Federal Court allowed PepsiCo/SVC's appeal. Justices Perram and Jackman held that royalty withholding tax did not apply because the concentrate payments did not include any embedded royalty component and, in any event, were income derived by PBS not PepsiCo/SVC.2 Justice Colvin upheld Justice Moshinsky's finding that the payments included an embedded royalty, but agreed with Justices Perram and Jackman that they were income derived by PBS.3 As a result, the court unanimously held that PepsiCo/SVC were not liable to pay royalty withholding tax.
It was on the application of diverted profits tax that the Full Court divided. Justices Perram and Jackman held that PepsiCo/SVC did not obtain any tax benefit under the Agreements because there was no reasonable alternative postulate (ie Schweppes paying part of the concentrate payments as a royalty was not a reasonable alternative to the Agreements).4 Justice Colvin dissented on this point.5 All three judges agreed that, if PepsiCo/SVC had obtained a tax benefit, Justice Moshinsky had correctly concluded that they had a principal purpose of obtaining that benefit.6
PepsiCo/SVC sought and were granted special leave to appeal to the High Court by a full bench.7
High Court judgment
Royalty withholding tax
The High Court unanimously upheld the decision of the Full Federal Court that PepsiCo/SVC were not liable to pay royalty withholding tax.
The majority of Justices Gordon, Edelman, Steward and Gleeson held that whether the payments made by Schweppes to PBS satisfied the statutory criteria for royalty withholding tax, ie of being 'consideration for' the use of intellectual property that is 'income derived' by PepsiCo/SVC,8 turned upon the proper construction of the overall contractual arrangements between the parties. This involved objectively ascertaining what the parties had agreed.9 The majority emphasised that the overall contractual arrangements between PepsiCo/SVC and Schweppes were 'comprehensive commercial arrangements' that 'constituted a complex exchange of valuable promises', some of which were monetary and others non-monetary.10
The majority held the payments by Schweppes to PBS were made under a separate contract between them for the transfer of concentrate only and were calculated per unit of concentrate. It was not contended that those prices were incorrect or inflated to hide a secret embedded royalty; nor was it disputed that they were arm's length, fair and not disproportionately high.11 The licence of intellectual property by PepsiCo/SVC was granted under each Agreement in return for Schweppes' promises to build the brand and strengthen the intellectual property of PepsiCo/SVC (eg by paying for marketing of, and distributing, the beverages to the standards and under the strict control of PepsiCo/SVC).12 Consequently, the majority concluded that the concentrate payments were not 'consideration for' the use of intellectual property, meaning they did not satisfy the statutory definition of a royalty. The minority of Chief Justice Gageler and Justices Jagot and Beech-Jones concluded that a portion of the payment for the concentrate was consideration for the use of intellectual property and thus a royalty.13
The majority also held that the payments by Schweppes were 'income derived' by PBS not PepsiCo/SVC. The Agreements with PepsiCo/SVC required Schweppes to enter into future contracts for the purchase of concentrate with either PepsiCo/SVC or their nominated subsidiary. After the nomination of PBS as the seller of concentrate, those contracts were made between PBS and Schweppes directly, albeit with some of the terms of those contracts governed by the Agreements. As such, there was never any antecedent monetary obligation imposed on Schweppes to pay PepsiCo/SVC, which they could then direct to be paid to PBS. Nor did PBS receive payment as agent or trustee for PepsiCo/SVC. Rather, each contract involved Schweppes providing purchase orders directly to PBS, PBS transferring risk in and title to concentrate directly to Schweppes, PBS providing invoices directly to Schweppes, and Schweppes making payments directly to PBS's bank account.14 As a result, there was no income derived by PepsiCo/SVC that could be subject to royalty withholding tax. On this second point, the minority agreed.15
Diverted profits tax
However, like the Full Federal Court before it, the High Court divided on the application of diverted profits tax.
The majority held that PepsiCo/SVC were not liable to pay diverted profits tax because they did not obtain any tax benefit in connection with the scheme (ie not receiving royalties under the Agreements).16 The relevant statutory provision required a tax benefit to be identified by comparing the tax outcomes of the scheme actually entered into with a reasonable alternative postulate (ie a reasonable hypothetical alternative set of facts).
The majority held that this provision 'mandates that there cannot be a tax benefit if there is no postulate that is a reasonable alternative to a scheme' and that a conclusion that a tax benefit has been obtained '"must" be based and only based on a postulate or postulates that is or are reasonable. If none exist, no relevant "tax effect" can be demonstrated'.17 The majority emphasised the importance of a correct understanding of the commercial and economic substance of the contractual arrangements that comprise the actual scheme to the identification of whether a postulate is a reasonable alternative, because a reasonable alternative postulate should correspond to the substance of the scheme.
In this case, the Commissioner's alternative postulate, which involved Schweppes paying part of the concentrate payments as a royalty to PepsiCo/SVC, was 'fundamentally different' to the scheme of the actual Agreements and subsidiary contracts under which the concentrate payments were for concentrate alone, due to three '[c]ritical facts, unique to these appeals', namely:18
- the price paid for the concentrate was for the concentrate and nothing else
- the scheme was the product of arm's length dealings between unrelated parties
- the absence of a royalty was a market standard practice under the franchise-owned bottling operation model adopted by PepsiCo/SVC.
Furthermore, these facts also proved that no different arrangement might reasonably be expected to be entered into. In the absence of a reasonable alternative postulate, PepsiCo/SVC had not obtained a tax benefit, so were not liable to diverted profits tax.19
Having so concluded, it was unnecessary for the majority to consider the principal purpose requirement, but they nevertheless made some observations that criticised the reasoning of the Federal Court:20
- a principal purpose of obtaining a tax benefit was not supported by the manner in which the scheme was entered into and carried out because the scheme:
- 'was the product of an arm's-length negotiation between experienced and large commercial enterprises';
- 'produced a price payable for concentrate that was not disproportionately high and which was paid to an Australian resident taxpayer'; and
- 'followed broadly a pre-existing and entirely commercial way of doing business'.
- that the form and substance of the scheme were the same strongly favoured the principal purpose requirement not being satisfied;
- that the purportedly avoided royalty withholding tax payments would have been 'a negligible sum' of 1% of total payments by Schweppes militates strongly against the required principal purpose;
- that there was no reasonable alternative postulate means the change in financial position factors (ss177D(2)(c)-(e)) favour the taxpayer; and
- arm's-length dealings between the parties to the scheme means the nature of the connection between the parties factor (s177D(2)(h)) will also favour the taxpayer.
It would have been small consolation to the Commissioner that the majority also recognised that a substantial saving of foreign tax favoured the existence of the required principal purpose.21
Key implications
At its core, PepsiCo was a case about the apportionment for tax purposes of the consideration provided by one party under an arm's-length contract to another. For the High Court majority, it was wrong to isolate Schweppes' obligation to pay for the concentrate and allocate it to both PBS' obligation to supply concentrate and also the obligations of PepsiCo/SVC to grant Schweppes a licence to use their intellectual property, resulting in the latter part of the payment being a royalty.22 The majority accepted that individual contractual promises by one party, including to pay money, can be separately allocated to one or more other promises by another party, including for supply of goods or use of intellectual property rights, if that is consistent with their intention objectively ascertained from their contract and dealings.
That reasoning is generally helpful for taxpayers in that it allows them some flexibility in structuring and allocating the consideration for their contracts, but it does not provide carte blanche. The majority's endorsement of the contractual allocation of consideration in PepsiCo rested upon their prior acceptance of the following:23
- the transactions were not a sham
- the prices were arm's length, fair and not incorrect, inflated or disproportionately high
- the agreements were a correct and accurate record of the bargain ultimately struck (ie substance and form aligned)
- the agreements and contracts were the product of arm's-length negotiations and dealings between unrelated, independent, experienced and large commercial parties.
Ultimately, this means that whether a contractual allocation of consideration will be accepted for tax purposes will depend upon the specific contracts and dealings between the parties. As the result in PepsiCo indicates, with a split of six judges to five across the High and Federal Courts on the question whether there was an embedded royalty, this is an issue on which reasonable minds may differ. In addition to their effect on the allocation of consideration, some of these factors will be relevant to the determination of whether the general anti-avoidance rules (GAAR) or diverted profits tax provisions in Part IVA apply (the potential application of which will need to be considered).
In the intellectual property context, much will turn upon the reasonableness or arm's-length nature of the prices or values of monetary and non-monetary consideration provided. In PepsiCo, the conclusion that the prices for concentrate were arm's length was no doubt assisted by the primary judge's finding that the purported royalty rate was relatively low (ie just under 5.88%), as well as the 'all or nothing' nature of the Commissioner's argument that PepsiCo/SVC had given away its intellectual property for nothing.24 As the Full Federal Court majority noted, the inquiry is conceptually similar to that in a transfer pricing case because 'it involves a determination that a price charged for one thing in substance includes an economic transfer of value for something else'.25
Importantly, if one party is indifferent and submits the exercise of its will to the other in relation to a contractual allocation of consideration, those parties will not be dealing at arm's length, which would tend to indicate their contractual allocation of consideration would not be accepted.26 In addition, as the Full Federal Court majority also noted, there may be a distinction between the appropriate pricing of licences of trade marks and licences of copyright or patents.27 The Commissioner's draft public ruling on software arrangements also recognises a distinction between mere distribution arrangements and more complex development and distribution arrangements.28
Agreements between two or more large multinational corporate groups are often structured as 'umbrella' or 'global' agreements between the head or holding companies of the groups, which contain the contractual framework governing the overall transaction between them, supplemented by additional contracts between the same or subsidiary parties giving effect to specific aspects of the umbrella agreement. Such umbrella agreements often include clauses pursuant to which the head or holding companies agree to procure or cause their subsidiaries to do certain things (including enter into supplementary contracts).
Key to the unanimous conclusion of the High Court that PBS and not PepsiCo/SVC derived the concentrate payments from Schweppes was the finding that the drafting of the Agreements with Schweppes meant those Agreements were not contracts for the sale of concentrate. The minority held that PepsiCo/SVC '[b]eing obliged to cause to be sold to [Schweppes] the concentrate is not the same as selling to [Schweppes] the concentrate'.29 Similarly, the majority held that each Agreement 'was not a contract of the sale of concentrate, but a contract, amongst other things, for the making of such sales in the future'.30 Also important was the parties' agreement that PBS did not act as agent for PepsiCo/SVC or hold the payments received from Schweppes on trust.
This recognises that, with appropriate drafting, umbrella agreements can be structured with flexibility to allow a group to determine the specific entity that will enter into a specific transaction and the time at which that transaction will occur. Of course, much will turn upon the relevant statutory provisions imposing any applicable tax on the transactions, but the reasoning of the High Court suggests that such drafting can be legitimate for the purposes of Australian income tax, including anti-avoidance rules applicable to cross-border transactions. It will be interesting to see whether a similar result is reached in the appeal currently before the Tasmanian Court of Appeal regarding the application of land rich duty to a similar umbrella or global agreement. (For more information, see our Insight on the Van Diary case.)
In 2024, the Commissioner released a draft public ruling addressing the application of royalty withholding tax to software arrangements. Since then, finalisation of the ruling has been deferred pending the ultimate outcome in PepsiCo.
Some parts of the ruling appear to align with the majority's reasoning. For example, the requirement to characterise payments by reference to all facts and circumstances, including the contract and conduct of the parties, and the conclusion that consideration for royalty withholding tax purposes is broader than its technical meaning in contract law.31
Other aspects of the ruling may need to be adjusted to reflect the majority's reasoning. Most relevantly, the Commissioner's position that undissected amounts that are only partially for the use of intellectual property may be a royalty in their entirety and that apportionment is only required in certain cases seems inconsistent with both the reasoning and outcome in PepsiCo.
For completeness, the Federal Government has already announced a number of additional measures, which, if enacted, might be available to the Commissioner in a future cross-border, intellectual property licensing case:
- a new penalty for mischaracterised or undervalued royalty payments by significant global entities
- amendments to the GAAR to recognise a reduced withholding tax rate as a tax benefit
- amendments to the GAAR to recognise a dominant purpose of reducing foreign income tax.
As the Full Federal Court recognised, this was the first case to consider the operation of the diverted profits tax.32 However, given the particular issues in dispute, namely, the existence of a tax benefit and a principal purpose of obtaining that benefit, and the interconnection between the diverted profits tax and the GAAR in Part IVA on these issues, neither the Federal Court nor the High Court had the opportunity to consider in detail some of the unique aspects of the diverted profits tax that distinguish it from the GAAR (eg the sufficient foreign tax and sufficient economic substance tests). The case will have more general significance for the GAAR, and not just the diverted profits tax.
Nonetheless, the High Court did briefly address some diverted profits tax-specific provisions. It confirmed that the diverted profits tax assessment provisions are self-executing, unlike the GAAR which requires the Commissioner to make a determination.33 That said, as a matter of practical administration, the Commissioner is still required to issue a notice of assessment of diverted profits tax before a taxpayer becomes liable to pay.34 One of the key differences between the GAAR and diverted profits tax is the former has a sole or dominant purpose test, whereas the latter has a principal purpose test. The High Court appeared to accept the Federal Court's conclusion that a principal purpose, of which there can be more than one, is 'a prominent, leading or main purpose'.35
Putting these minor points aside, the reasoning and conclusions of both the Federal Court and High Court may cast some doubt on the efficacy of the diverted profits tax as a specific anti-avoidance rule in particular fact scenarios. A notable feature of the case in the Federal Court at first instance, the Full Federal Court and the High Court was that for every judge, regardless of whether they found for the Commissioner or PepsiCo/SVC, the reasoning on whether the concentrate payments contained an embedded royalty for royalty withholding tax purposes aligned with their reasoning on whether the diverted profits tax applied. The anti-avoidance rule was interpreted (at lease on the facts of this case) to produce the same outcome as the general taxing provisions it was supposed to supplement. As discussed below, however, this may be more a feature of the 2013 amendments to the definition of 'tax benefit' that apply to the GAAR, and which are also adopted for the purposes of the diverted profits tax.
Taxpayer's onus of proof
Arguably, the most important part of the High Court majority's reasoning related to the onus of proof on a taxpayer in relation to whether they obtained a tax benefit. After accepting that it is insufficient to merely prove that each of the Commissioner's alternative postulates is unreasonable, the majority held that:36
it can be accepted that a taxpayer may more usually demonstrate the absence of a tax benefit by identifying, on the evidence, a postulate or counterfactual which shows what it might reasonably be expected to have done, had it not entered into or carried out a relevant scheme. Such a postulate must be a reasonable one, its reasonableness being measured, in accordance with s 177CB(4), by reference to the substance of the scheme, and any result or consequence for that taxpayer achieved by the scheme. Nevertheless, in unusual cases, a taxpayer may demonstrate the absence of a tax benefit by establishing that there is no postulate that is a reasonable alternative to entering into or carrying out the scheme.
Obviously, PepsiCo was one such unusual case.
In rejecting the relevance of some evidence emphasised by the Commissioner, the majority indicated that relevant evidence should either relate to the type of products involved or to similar or analogous products and include an analysis of the full suite of contractual and legislative arrangements in each relevant country applicable to those products.37
Tax benefit requirement returns to prominence
The GAAR was amended in 2013 to clarify that a tax benefit could be identified by comparing the actual scheme carried out to either one of two separate alternative postulates or counterfactuals:
- the events and circumstances that actually happened or existed other than those that form part of the scheme (ie the 'annihilation approach', under which the scheme is annihilated); or
- a reasonable alternative to entering into or carrying out the scheme (ie the 'reconstruction approach', under which the scheme is not annihilated, but reconstructed).
This was intended to preclude a taxpayer from arguing that if it could not carry out its scheme, it would simply have 'done nothing', which necessarily meant it did not obtain a tax benefit from the scheme actually carried out. It was also intended to ensure that any Part IVA analysis was focused on the dominant purpose requirement and not the tax benefit requirement.38
By holding that under the reconstruction approach a taxpayer can demonstrate they did not obtain a tax benefit by proving there is no reasonable alternative postulate to the actual scheme they carried out, the High Court majority may have effectively changed the operation of the GAAR so that it is now in a position similar to its pre-2013 amendment state. A taxpayer can succeed in a GAAR case, albeit one the High Court described as 'unusual', by proving they obtained no tax benefit from the scheme because there was no reasonable alternative (eg PepsiCo/SVC were effectively able to prove they would only enter into the Agreements, which—whilst not the same as proving they would have done nothing—was proving they would have done nothing different, if they did not enter into the Agreements). Moreover, even if a tax benefit can still be identified under the annihilation approach, when considering the dominant purpose requirement, the majority also held that the fact that there is no reasonable alternative postulate under the reconstruction approach supports a conclusion that the dominant purpose is absent.39 This all means the tax benefit requirement has been re-elevated in importance when applying the GAAR. Ultimately, it may be that a reform implemented to assist the revenue has in certain circumstances further restricted the operation of the GAAR.
Double tax agreements, or treaties, between Australia and other countries contain articles that allocate taxing rights in respect of royalties paid for intellectual property, amongst other things, between the two countries. In PepsiCo, the relevant treaty was between Australia and the US (US DTA), with article 12 applying to royalties.
At first instance, Justice Moshinsky held that the effect of sections 4-5 of the International Tax Agreements Act 1953 (Cth) (Agreements Act) 'was that the provisions of the US DTA were incorporated into domestic Australian law and prevailed over s 128B (and associated provisions) [dealing with royalty withholding tax] to the extent of any inconsistency'.40 Section 5 provides that the US DTA 'has the force of law according to its tenor', while section 4 provides that the provisions of the Assessment Act, including the US DTA given the force of law, have effect notwithstanding anything inconsistent in any Act imposing or assessing Australian income tax (subject to exceptions not presently relevant). For this reason, Justice Moshinsky considered the requirements of article 12 and section 128B concurrently.41
In the Full Federal Court, Justice Colvin adopted this reasoning, but noted that the appeal was conducted on the basis that there was no relevant difference between article 12 of the US DTA and the Australian royalty withholding tax provisions.42 In contrast, the majority held that the 5% limit on Australian royalty withholding tax imposed by article 12 of the US DTA was only given effect by section 17A(1) of the Agreements Act, which expressly limits the rate of Australian royalty withholding tax to that specified in a treaty. This implies a view that the provisions of the US DTA, given the force of law and prevalence by sections 4-5 of the Agreements Act, did not operate on their own terms and need to be implemented by provisions in addition to sections 4-5.
In the High Court, the US DTA was not mentioned at all, with the majority holding the issue was one of domestic law,43 implying agreement with the Full Federal Court majority.
This division amongst the Federal Court and High Court regarding the effectiveness of double tax agreements under domestic law has arisen, but not been resolved, in previous international tax cases as well.44 That uncertainty should be kept in mind when relying upon the benefits of such treaties.
Despite plenty of ink being spilt at both levels in the Federal Court over the relevance and meaning of cases concerning consideration for stamp duty purposes, in particular, Dick Smith and Lend Lease,45 the High Court majority gave this issue short shrift. They distinguished both cases on the basis they 'turn upon an application of a State Duties Act to their particular facts'.46 In addition, the majority noted that the court in each case supported their approach of determining the consideration for the use of intellectual property by reference to the terms of the entire contractual arrangements between the parties.47
More broadly, the majority noted that 'consideration' has multiple meanings. The meaning adopted by the majority in the context of the statutory definition of a royalty for royalty withholding tax purposes was a promise to pay or confer some other benefit that is a basis, purpose or condition for the conferral of the use of intellectual property. While both this meaning and the meaning of consideration for stamp duty purposes are broader than the contractual meaning of consideration, the majority founded their meaning in the text of the statutory definition.48 This tends to suggest the meaning of consideration for royalty withholding tax purposes is distinct from that for both stamp duty and contractual purposes.
Actions you can take now
- Review cross-border contractual arrangements with independent third parties involving the licensing of intellectual property as part of the arrangement to ensure they reflect an arm's-length dealing and arm's-length prices.
- Consider the application of the royalty withholding tax provisions, GAAR and diverted profits tax in relation to restructures involving the licensing of intellectual property.
Footnotes
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PepsiCo, Inc v Federal Commissioner of Taxation [2023] FCA 1490 (30 November 2023) [18].
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PepsiCo Inc v Federal Commissioner of Taxation (2024) 303 FCR 1, 9-10.
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Ibid 45-8.
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Ibid 25-6.
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Ibid 49.
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Ibid 32-3, 49.
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See, eg Federal Commissioner of Taxation v PepsiCo, Inc [2024] HCASL 298 (7 November 2024).
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Income Tax Assessment Act 1936 (Cth) ss6(1)(definition of 'royalty'), 128B.
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Federal Commissioner of Taxation v PepsiCo, Inc. [2025] HCA 30 (13 August 2025) [159], [178].
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Ibid [123], [163], [166].
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Ibid [148], [167]-[168], [174].
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Ibid [147], [163], [169].
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Ibid [60].
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Ibid [148], [178]-[185].
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Ibid [66]-[67].
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Ibid [203].
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Ibid [207].
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Ibid [214], [218]-[220].
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Ibid [224]-[225].
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Ibid [226], [230], [232]-[235].
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Ibid [236].
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Ibid [173].
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Ibid [147]-[148], [162], [167]-[168], [174], [219], [230], [232].
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Ibid [163].
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(2024) 303 FCR 1, 15.
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Collis v Federal Commissioner of Taxation (1996) 33 ATR 438, 443. Cf Federal Commissioner of Taxation v PepsiCo, Inc. [2025] HCA 30 (13 August 2025) [235].
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(2024) 303 FCR 1, 8.
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Australian Taxation Office, Income tax: royalties – character of payments in respect of software and intellectual property rights, TR 2024/D1, 31 January 2024, 7 [14]-[15] (TR 2024/D1).
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[2025] HCA 30 (13 August 2025) [66].
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Ibid [184].
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TR 2024/D1, 6 [12], 7 [16].
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(2024) 303 FCR 1, 3.
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[2025] HCA 30 (13 August 2025) [83], [193].
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Income Tax Assessment Act 1936 (Cth) s177P(3)(Note); Taxation Administration Act 1953 (Cth) sch1 divs145, 155.
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[2025] HCA 30 (13 August 2025) [87], [199].
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Ibid [211]-[212].
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Ibid [223].
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Explanatory Memorandum, Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 (Cth) 12-5.
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[2025] HCA 30 (13 August 2025) [234].
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[2023] FCA 1490 (30 November 2023) [233].
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Ibid [237]-[259].
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(2024) 303 FCR 1, 37. See also 40.
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[2025] HCA 30 (13 August 2025) [151].
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See, eg Burton v Federal Commissioner of Taxation (2019) 271 FCR 548, 566-7 (Logan J), 586 (Steward J), 594 (Jackson J).
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Chief Commissioner of State Revenue (NSW) v Dick Smith Electronics Holdings Pty Ltd (2005) 221 CLR 496; Commissioner of State Revenue (Vic) v Lend Lease Development Pty Ltd (2014) 254 CLR 142.
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[2025] HCA 30 (13 August 2025) [172].
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Ibid [172]-[173].
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Ibid [160]-[161].