Tax Treaty Case Law around the Globe 2025

1. Introduction

Significant revenue-generating opportunities from royalty withholding taxes have been the focus of the Australian Government over recent years. The case analysed in this report, PepsiCo, Inc v Commissioner of Taxation (PepsiCo), offers the latest guidance for applying Australia’s domestic royalty rules and Art. 12 of the Australia-United States Tax Convention (2001) (Australia-US Income Tax Treaty (2001)) regarding royalty withholding tax obligations. The definition of a royalty in the Australia-United States Tax Treaty (2001) is consistent with that in Article 12(2) of the OECD Model Convention 2017 and Art. 12(3) of the United Nations Model Convention 2021. The potentially wide ramifications of the court’s decision in PepsiCo meant that there was significant global interest in the outcome of the case.

The latest decision in PepsiCo is part of an ongoing effort by the Australian Federal Government and the Australian Taxation Office (ATO) to address what it conS. 264siders to be multinational tax avoidance of royalty withholding tax. In 2022, the federal government announced a measure to deny deductions to significant global entities for payments relating to intangibles mad...