Last week the High Court of Australia published judgment in Commissioner of Taxation v Pepsi Co & Ors [2025] HCA 30. The appeal was dismissed by a 4:3 majority.
The case concerned bottling agreements between Schweppes Australia and PepsiCo Bottling Co Singapore. The arrangements provided for Schweppes to purchase PepsiCo concentrate to manufacture and sell PepsiCo branded products. In issue was whether the arrangements could be characterised as royalty payments subject to royalty withholding tax. The majority held that the agreements provided for payments to be made for the use of concentrates to manufacture and bottle soft drinks, and were not for the use of PepsiCo IP. The Court also rejected an alternative argument advanced by the Commissioner that if Royalty Withholding Tax did not apply, the a diverted profits tax would apply.
The minority (Gagler CJ and Jagot and Beech-Jones JJ) held that that a diverted profit tax would apply, including because the agreement substantially related to PepsiCo’s intellectual property. Without this, Schweppes would have “no interest in buying the concentrate.”
Kristen Deards SC and Ryan May of Banco Chambers appeared for the Commissioner of Taxation.