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At a glance
- Royalty not found on the terms of the contract which was found to be a “distribution arrangement”.
- Royalty withholding tax not applicable.
- Diverted Profits Tax elements also found not satisfied by the majority.
- Special leave to appeal to the High Court of Australia remains possible.
- How EY can help.
On 25 June 2024, the Full Court of the Federal Court of Australia delivered a landmark decision in PepsiCo, Inc v Commissioner of Taxation [2024] FCAFC 86, overturning the first instance decision in the Federal Court. The Full Court, by majority, found that a royalty did not exist in an agreement between arm’s length parties in circumstances where the agreement did not expressly provide for a royalty. Furthermore, the Full Court, also by majority, found the Diverted Profits Tax (DPT) provisions did not apply.