Tax Treaty Case Law around the Globe 2012
1. Aufl. 2013
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Australia: The Meaning of Royalty and Software License Agreement
20.1. Introduction
The IBM case revolved around a collection of domestic law issues and the effect of the Australia-United States treaty thereon, with implications for both non-resident and resident taxpayers. The domestic law issues raised by the case included the definition of a “royalty” in circumstances where the payment encompasses a bundle of rights conferred by the non-resident, the imposition of withholding tax on such amounts when paid to non-residents and the obligations of resident payers to collect the tax owed by non-residents.
However, the case was decided principally by reference to the impact of the Australia-United States treaty on the tax claims made by domestic law. The case has significance for the interpretation of article 12 of the OECD Model and Commentary. The Commentary refers to a distinction between payments made for rights to be a distributor (which are viewed as business profits rather than royalties) and payments made for the rights to use intellectual property (which are royalties). This case directly concerns the feasibility of drawing this distinction in the computer industry.