Implications for Diverted Profits Tax & RWHT of PepsiCo Tax Case

The recent PepsiCo vs Commissioner of Taxation case is one of the most significant developments in Australian tax law in recent years. It addresses two critical issues, royalty withholding tax (RWHT) and Diverted Profits Tax (DPT), in the context of complex arrangements involving intellectual property (IP) and independent third-party bottling agreements. The High Court’s decision provides valuable guidance for multinational businesses on how payments connected to the use of intangibles should be characterised and taxed in Australia. Background of the PepsiCo Tax Case in Australia The PepsiCo group runs a global beverage business. Several US-resident subsidiaries own key intellectual property (IP) for brands such as Pepsi, Mountain Dew, and Gatorade. In 2009, PepsiCo updated its exclusive bottling agreements (EBAs) with an independent Australian bottler. These allowed the bottler to make, market, and distribute PepsiCo drinks in Australia, while separate agreements covered marketing and advertising. The bottler was not part of the PepsiCo group. Under the EBAs: PepsiCo, or a related entity, supplied concentrate to the bottler, who mixed it with other ingredients to produce finished beverages for sale in Australia. PepsiCo granted the bottler rights to use its IP and packaging, with strict controls on how the IP could be used. The bottler bought concentrate from PepsiCo Beverage Singapore (PBS). For the 2018 and 2019 years: PBS acquired concentrate from another PepsiCo entity, processed orders from the bottler, issued invoices, and shipped the concentrate for local production. Two sets of proceedings followed: Under the Judiciary Act 1903 (Cth), PepsiCo sought a declaration that it was not liable for royalty withholding tax (RWHT). Under the Taxation Administration Act 1953 (Cth), it challenged Diverted Profits Tax (DPT) assessments. On 30 November 2023, Justice Moshinsky found for the Commissioner on both issues. The Full Federal Court later ruled for the taxpayers, but the Commissioner appealed. The PepsiCo vs Commissioner of Taxation matter was heard in the High Court on 2–3 April 2025, raising important questions on use of intangibles and Australia’s DPT rules. Key Issues Before the High Court The PepsiCo vs Commissioner of Taxation appeal raised two main questions: Royalty Withholding Tax (RWHT): Whether the payments made by the Australian bottler under the EBAs were “royalties” under section 128B of the Income Tax Assessment Act 1936 (ITAA 1936). If so, whether those royalties were “derived” by PepsiCo, a non-resident, and therefore subject to RWHT. Diverted Profits Tax (DPT): Whether PepsiCo was liable for DPT under section 177P of the ITAA 1936, on the basis that the EBAs were primarily designed to avoid RWHT and reduce PepsiCo’s US tax obligations. The case was heard by a full seven-judge panel of the High Court of Australia. The High Court unanimously ruled in PepsiCo’s favour on the RWHT issue. While three justices found that the payments were royalties, all seven agreed that PepsiCo had not “derived” the income. The DPT question was resolved by a narrow 4–3 majority, again in PepsiCo’s favour, concluding that the principal purpose of entering into the EBAs was not tax avoidance. Royalty Withholding Tax (RWHT) Issue Under Australia’s tax law, royalties paid to a US-resident are generally subject to a 5% withholding tax. In this case, the High Court focused on whether the payments made by the Australian bottler were “royalties” under section 6(1) of the ITAA 1936. Were the bottler’s payments for IP use? The Commissioner argued that part of the bottler’s payments to PepsiCo Beverage Singapore (PBS) were effectively for the right to use PepsiCo’s IP, since valuable IP could not have been licensed “for nothing.” The High Court disagreed. It treated the exclusive bottling agreement (EBA) as an umbrella contract governing future dealings, where PepsiCo’s consideration for licensing IP included the bottler’s promise to build the PepsiCo brand in Australia, not monetary payments. Each invoice for concentrate was treated as a separate arm’s length sale between PBS and the bottler, with no royalty component. Key takeaway: When agreements involve both tangible goods and intangible rights, it is crucial to identify precisely what each payment is for. Where IP rights and other property can be separated payments for goods may not be treated as royalties. Did PepsiCo “derive” the income? The Commissioner also argued that, even if PBS received the payments, they should be treated as income “derived” by PepsiCo. The High Court rejected this. The bottler owed payment only to PBS, not PepsiCo. PepsiCo held no legal title to the concentrate, and no antecedent obligation existed between the bottler and PepsiCo. The payments simply discharged the bottler’s debt to PBS, an Australian tax-resident entity. Key takeaway: The Court confirmed that PepsiCo did not derive the amounts paid to PBS, further supporting that RWHT did not apply. This finding is closely tied to PepsiCo’s unique facts, particularly the presence of an unrelated, arm’s length bottler and a separate Australian-resident seller. Diverted Profits Tax (DPT) Issue Australia’s Diverted Profits Tax (DPT), introduced in 2017, sits within the country’s General Anti-Avoidance Rules (Part IVA) and operates outside tax treaties. It was designed to: Ensure tax paid by significant global entities (SGEs) reflects their real economic activities in Australia. Prevent profits being shifted offshore through artificial arrangements. Encourage SGEs to provide sufficient information to the ATO to resolve disputes efficiently. If the rules apply, tax is imposed at 40% on the diverted profit. The PepsiCo tax case was the first judicial test of the DPT. For PepsiCo to be liable, two conditions needed to be met: Entry into the EBAs had to produce a DPT tax benefit: namely avoiding RWHT and reducing US tax liabilities. It had to be concluded, after considering statutory factors, that the EBAs were entered into for a principal purpose of gaining that benefit. Competing views on “reasonable alternatives” The Commissioner argued that a reasonable alternative arrangement could have been made, with minor wording changes to the EBAs, that would have treated bottler payments as including a royalty, resulting in more tax. PepsiCo argued that no reasonable alternative existed. The EBAs reflected genuine commercial arrangements necessary to

What Is Consumer Data Right? CDR Rules, Legislation, and Opportunities

In today’s digital economy, data has become one of the most valuable assets. Consumers generate large amounts of personal and transactional information every day and having greater control over this data is essential for both transparency and competition. To address this need, Australia introduced the Consumer Data Right (CDR) Legislation, a legal framework that gives individuals and businesses more power over how their data is accessed and shared. This blog discusses what CDR is, what is classified as CDR data, and how data is shared under the legislative’s rules. What is CDR? (CDR meaning) The definition of CDR data is set out in a sector’s designation instrument. Each sector covered by the framework, such as banking, energy, or telecommunications, has its own instrument that specifies what information qualifies as CDR data. The meaning of CDR data is deliberately broad. It not only covers the direct data listed in the designation instrument but also extends to data that is derived wholly or partly from that information. This includes data that has been further derived from previously generated datasets. Materially Enhanced Information Within the legislation, there is also the concept of “materially enhanced information.” This refers to product usage data that becomes more valuable, insightful, or commercially significant once it has been analysed. Since CDR rules state that derived information is still considered CDR data, materially enhanced insights are also covered. In banking, this could include the results of an income or expense assessment, or the classification of transactions into categories such as rent, groceries, or entertainment. These insights, while not raw transaction data, are treated as part of the consumer’s CDR data because they directly stem from the original dataset. What is Not Considered CDR Data? While the CDR gives consumers control over a wide range of personal and product information, not all data falls under its scope. In the banking sector, for example, certain categories of credit-related information, which are already regulated under the Privacy Act, are excluded from the definition. According to section 9 of the designation instrument for banking, exclusions include: a statement that an information request has been made for an individual by a credit provider, mortgage insurer or trade insurer new arrangement information about serious credit infringements court proceedings information about an individual personal insolvency information about an individual the opinion of a credit provider that an individual has committed a serious credit infringement. De-Identifying CDR Data Under the legislation, accredited data recipients can “de-identify” information, meaning that it can no longer be used to reasonably identify a consumer, even when combined with other available data. De-identification must follow strict processes set out in the legislation. De-identification may be carried out in order to: Comply with Privacy Safeguard 12 by removing data that is no longer needed (as an alternative to deletion). Use the data for research purposes, provided the consumer has given explicit consent. Share or sell de-identified data to a third party, again only with the consumer’s express consent. How CDR Data is Shared The process typically unfolds in six steps: Consumer ConsentThe consumer agrees to share their data with an accredited provider in order to access a specific good or service. Accredited Person Requests AccessThe accredited provider (for example, a fintech or energy comparison service) contacts the data holder, such as a bank or utility company, to request the consumer’s information. Data Holder Seeks AuthorisationThe data holder asks the consumer to confirm that they want their data disclosed to the accredited provider. Consumer Authorises DisclosureThe consumer formally authorises the transfer of their data, ensuring that the process is voluntary and transparent. Data TransferThe data holder securely shares the requested information with the accredited provider. At this stage, the provider becomes an accredited data recipient of the consumer’s CDR data. Service DeliveryThe accredited data recipient uses the consumer’s data to deliver the agreed service, such as providing tailored product recommendations, financial tools, or energy plan comparisons. Source: https://www.oaic.gov.au/consumer-data-right/consumer-data-right-legislation,-regulation-and-definitions/consumer-data-right-data What Businesses Need to Know The CDR establishes a detailed framework that businesses must follow in order to participate. Key considerations include: Compliance Requirements Businesses designated as data holders must be prepared to share data when requested by consumers. They must ensure their systems are secure, reliable, and capable of handling data transfers in line with the legislation. Accreditation Process To receive CDR data, businesses must apply to become an Accredited Data Recipient (ADR). Accreditation is managed by the Australian Competition and Consumer Commission (ACCC) and requires organisations to meet strict conditions around information security, privacy management, and operational capacity. This accreditation demonstrates that the business is trusted to handle sensitive consumer information. Data Security and Privacy Obligations Accredited businesses must comply with the privacy safeguards outlined in the CDR rules. These safeguards are stricter than the general privacy principles under the Privacy Act, reflecting the sensitive nature of the data. Opportunities for Businesses While compliance involves effort and cost, it creates significant opportunities: Innovation: Access to richer consumer data allows businesses to design more personalised and competitive products. Trust: Transparency in how data is handled strengthens consumer confidence. Competitiveness: Early adoption of CDR practices positions businesses to stay ahead in a changing digital economy. The Future of CDR in Australia The Consumer Data Right is still evolving, and its reach will expand well beyond banking and energy. Understanding its future direction is vital for businesses planning long-term strategies. Expansion Into New Sectors The Australian Government has signaled plans to extend CDR. This will give consumers even greater visibility across their financial and service-related data, creating a more connected and competitive marketplace. Towards a Data Economy The broader vision of this legislation is to build a dynamic “data economy” where information flows safely and efficiently between consumers and service providers. In this environment, businesses can leverage insights responsibly while consumers maintain control. International Comparisons Australia’s CDR rules are often compared to “Open Banking” initiatives in the United Kingdom and Europe. While those frameworks began with financial data, Australia’s approach is more ambitious as it is

Audit Requirements in Australia vs France: Key Differences

Understanding the differences in audit requirements is essential for any multinational business seeking compliance, transparency, and investor confidence. In this blog we compare the auditing requirements in Australia and France. Regulatory Bodies and Audit Frameworks Both France and Australia have well-established regulatory systems that ensure the integrity and transparency of financial reporting. Auditing in France In France, the audit profession is regulated by the Haut Conseil du Commissariat aux Comptes (H3C), which ensures the quality and independence of auditors. Audits are performed in accordance with the Normes d’Exercice Professionnel (NEP), developed under the authority of the H3C. As France operates under a civil law system, audit obligations and professional standards are clearly defined and codified in legislation. Auditing in Australia In Australia, the Australian Securities and Investments Commission (ASIC) oversees the audit profession and enforces compliance with national auditing requirements. Auditors follow the Australian Auditing Standards (ASAs), which are based on the International Standards on Auditing (ISA). Unlike France, Australia applies a common law system, placing greater emphasis on principles, professional judgment, and sound corporate governance practices. Despite these differences, both frameworks aim to promote transparency, reliability, and trust in financial information. Auditing Process In both France and Australia, the purpose of auditing is the same: to verify the accuracy of financial statements, ensure transparency, and strengthen confidence in a company’s financial reporting. This means that auditors in both countries focus on confirming that the financial statements present a true and fair view of the company’s financial position in accordance with the respective national auditing standards. Throughout the audit process, they are also required to remain fully independent and objective to maintain the integrity of their opinion. Both jurisdictions also require auditors to report any irregularities they identify during their work, although the approach differs. In France, auditors have a formal procédure d’alerte (alert procedure), which obliges them to inform the company’s management and, if necessary, the commercial court when they detect irregularities that could threaten the company’s going concern. In contrast, Australia does not have a structured alert mechanism; however, auditors are legally required to report significant breaches or suspected misconduct to the Australian Securities and Investments Commission (ASIC). Additionally, French auditors play a broader role beyond the annual audit of financial statements. They may be appointed to perform specific assignments such as verifying the value of contributions during mergers, transformations, or capital increases. Statutory Auditing Requirement Thresholds Criteria France Australia Audit Requirement Trigger Mandatory if company exceeds 2 of 3 thresholds: • Balance sheet total: €5 million • Turnover (excl. VAT): €10 million • Employees: >50 Proprietary company considered “large” if it meets 2 of 3 thresholds: • Revenue: ≥ AUD 50 million • Gross assets: ≥ AUD 25 million • Employees: ≥100 Audit Obligation Large and medium-sized companies must appoint a statutory auditor (commissaire aux comptes). Large proprietary and all public companies must prepare audited financial reports. Small proprietary companies only if directed by ASIC or shareholders. Lower Thresholds for Subsidiaries Applies when controlled by an entity already audited: • Balance sheet: €2.5 million • Turnover: €5 million • Employees: >25 – Other Entities that need to conduct an Audit Non Profits are required if annual donations + subsidies exceed €153,000 or if recognized as public utility, issue bonds, or provide microloans. Companies limited by guarantee: • Revenue < AUD 1 million → audit or review • Revenue ≥ AUD 1 million → audit mandatory Public Companies All public limited companies (Société Anonyme – SA) require audits regardless of size. All public companies must prepare audited reports and lodge them with ASIC. Relief available for certain wholly owned subsidiaries (via ASIC Instrument 2016/785). Filing / Submission Timeline Financial statements filed annually with the Greffe du Tribunal de Commerce. Reports must be audited and lodged within 4 months after financial year-end (public companies). You can read more about audit requirements in France on our dedicated blog post. Auditor Appointment Appointment of an Auditor in France In France, a statutory auditor (commissaire aux comptes) can be appointed either directly in the company’s founding documents (statuts) or later by a resolution passed at a general shareholders’ meeting. If an auditor has not been appointed or a vacancy arises due to resignation or dispute, the commercial court may designate one to ensure compliance with audit obligations. Compliance with the audit law in France requires companies to appoint both a principal (titular) auditor and an alternate auditor, who steps in if the primary auditor is unable to perform their duties. Auditors must be selected from the official registry maintained by the Haut Conseil du Commissariat aux Comptes (H3C). Rotation rules: Public Interest Entities (PIEs) are required to change their audit firms every 10 years. This rotation period can be extended up to 24 years if the audit firm is appointed through a competitive tender process, ensuring that companies periodically reassess and select their auditors transparently. For companies that are not classified as PIEs, auditors are typically appointed for a term of 6 years, but there is no strict requirement for mandatory rotation. You can read more about mandatory rotation of auditors in France here. Appointment of an Auditor in Australia In Australia, an auditor may be an individual registered company auditor, a firm, or an authorised audit company. The directors of a public company must appoint an auditor within one month of registration, unless one has already been appointed at the general meeting. This appointment is then confirmed or replaced at the company’s first Annual General Meeting (AGM). For proprietary companies, the directors may appoint an auditor if one has not already been appointed by the members. Auditors remain in office until they resign with ASIC’s consent, are removed under Section 329, become ineligible, or the company is wound up. Moreover, a statutory auditor is extremely hard to get removed in Australia. The management needs to take permission of the central government after its board of directors recommends a proposal to this effect. However, this does not mean that auditors never

Australian Sustainability Reporting Standards: Everything You Need to Know About AASB S1 & AASB S2

In this article, we break down the purpose and key requirements of the australian sustainability reporting standards (AASB S1 and AASB S2).

What are Sustainability Reports and Are They Mandatory in Australia?

In this blog we discuss what is sustainabily reporting, why is it important and is it mandatory to publish sustainability reports in Australia.