Federal Court of Australia Deems PepsiCo Payments as Royalties, Imposing Withholding Tax in Landmark Case

Dated 30 November, 2023

The Federal Court of Australia, in its ruling dated November 30, 2023, addressed a tax dispute involving PepsiCo Inc. The Court determined that payments made by an Australian company for purchasing concentrate from PepsiCo partly constituted royalties for the use of PepsiCo's trademarks and intellectual property, making them subject to royalty withholding tax in Australia. The case stemmed from an exclusive bottling agreement (EBA) where PepsiCo granted the Australian company rights to use its intellectual property in beverage production. The Australian Taxation Office issued withholding tax notices to PepsiCo under the Income Tax Assessment Act 1936 and the Australia-USA tax treaty, which PepsiCo challenged. The Court, after detailed analysis, concluded that the payments were indeed royalties and should be taxed accordingly. 

This ruling underscores the importance of precise contractual language and compliance with local tax laws in international agreements, serving as a significant precedent for similar cases involving cross-border intellectual property transactions.

A copy of the full judgment can be found at https://tpcases.com/australia-vs-pepsico-inc-november-2023-federal-court/