IBX-Jakarta. The Australian Taxation Office (ATO) has won a court case that, for the first time, considered the diverted profits tax – a new tool to ensure multinationals pay the right amount of tax. The decision was given by the Federal Court in PepsiCo, Inc. vs. Commissioner of Taxation. This decision confirms PepsiCo, Inc. (Pepsi) is liable for royalty withholding tax and, in the alternative, diverted profits tax would apply.
Deputy Commissioner Rebecca Saint said this is a landmark decision as it confirms that the diverted profits tax can be an effective tool in the ATO’s arsenal to tackle multinational tax avoidance.
The Tax Avoidance Taskforce has for a number of years been targeting arrangements where royalty withholding tax has not been paid because payments have been mischaracterized, particularly payments for the use of intangible assets, such as trademarks.
Saint commented: “The Pepsi matter is a lead case for our strategy to target arrangements where royalty withholding tax should have been paid. Whilst there may still be more to play out in this matter, it sends strong signals to other businesses that have similar arrangements to review and consider their tax outcomes. This outcome was only possible after years of hard work by the talented and dedicated officers in the Tax Avoidance Taskforce.”