Global Daily Tax News, Australia Acknowledges Defeat In PepsiCo Transfer Pricing Dispute, (Aug 14, 2025)

The Australian Taxation Office has acknowledged the new ruling from the High Court of Australia in favor of PepsiCo, confirming the Full Federal Court's earlier finding – in PepsiCo, Inc. v Commissioner of Taxation [2024] FCAFC 86 – that the group was not liable to royalty withholding tax and that the diverted profits tax (DPT) did not apply.

In response the ruling on the same day, the ATO said on August 13:

"The Australian Taxation Office (ATO) acknowledges the High Court decisions in Commissioner of Taxation v PepsiCo, Inc. and Commission of Taxation v Stokely-Van Camp, Inc."

"The High Court's decision confirms PepsiCo, Inc and Stokely-Van Camp, Inc are not liable to pay royalty withholding tax nor diverted profits tax in the matters in dispute."

"The ATO welcomes the High Court's clarification of these important areas of law."

"We are currently considering this decision including any broader impact it may have on the reasoning set out in draft Taxation Ruling TR 2024/D1 Income tax: royalties - character of payments in respect of software and intellectual property rights."

The case concerned transactions between PepsiCo and an Australian company engaged by it to undertake the bottling and sale of beverages in Australia. The case concerns whether Pepsi is liable for royalty withholding tax in Australia and, in the alternative, diverted profits tax.

PepsiCo entered into exclusive bottling agreements (EBAs) that included a licence of the taxpayers' trademarks and other intellectual property but did not provide for a royalty.

The ruling considered whether, as the Commissioner alleged, the taxpayers were liable to pay royalty withholding tax on part of the payments made by the Bottler under the EBAs – specifically, whether payments made by the Bottler were consideration for the right to use intellectual property.

Further, the case was the first time the court considered the potential application of Australia's diverted profits tax, looking at whether the taxpayers entered into or carried out the scheme for a principal purpose of obtaining a tax benefit and reducing foreign tax liabilities.

The Full Federal Court concluded that payments made by the Bottler to the subsidiary were for concentrate alone and included no royalty component. In particular, it said that the PepsiCo entities based in the US that owned the intellectual property received no income from the sale of concentrate to the Bottler.

The Court further said it was inappropriate to conclude that the US PepsiCo entities would have derived taxable royalties income but for the existence of a scheme intended to avoid tax under the diverted profits tax provisions.