Australian Tax Office wins royalty dispute with PepsiCo

5 December 2023

The Federal Court of Australia has dismissed an application brought by PepsiCo against the Commissioner of Taxation in a case concerning royalties tax and diverted profits tax from $240 million in payments received by PepsiCo entities.

The dispute concerned bottling and distribution arrangements for PepsiCo products in Australia. Under the arrangements, Concentrate Manufacturing, a Singapore based PepsiCo entity, manufactured concentrates of PepsiCo products. The concentrates were supplied to another Australian registered PepsiCo subsidiary called PepsiCo Beverage Singapore.

The concentrates were ultimately supplied to, in the case of one bottling agreement, Schweppes Australia.

Under the bottling agreements, PepsiCo Beverage Singapore received $240 million in payments in the 2018 and 2019 financial years. The payments were transferred to Concentrate Manufacturing with a small margin.

The Commissioner determined that the payments made by Schweppes were assessable for taxation purposes as royalties.

PepsiCo challenge to the Commissioner's assessment was dismissed by Justice Moshinsky who ruled in favour of the Commissioner on the royalty tax issue. His Honour did not determine the diverted profits tax issue but had he been required to do so, would have ruled in favour of the Commissioner. This decision marks the first time the diverted profits tax provisions have received judicial consideration.

Kristen Deards SC of Banco Chambers appeared for the Commissioner of Taxation with Tamara Phillips and David Lewis of 6 Selborne.

Link to judgment