High Court to hear PepsiCo tax dispute
The Australian Taxation Office (ATO) has set its sights on multinational beverage company PepsiCo, with the High Court of Australia today set to hear a significant legal challenge between the pair that tests the application of royalty withholding tax and diverted profits tax to international corporate structures.
At issue is whether PepsiCo and its related entity Stokley-Van Camp Inc – both United States-based – should be liable for royalty withholding tax for the 2018–2019 financial year, stemming from exclusive bottling arrangements with Schweppes Australia.
The ATO contends that Schweppes Australia’s agreements with PepsiCo and Stokley-Van Camp, first signed in 2009, granted rights to use intellectual property, including trademarks, to produce and distribute Pepsi, Mountain Dew and Gatorade in Australia. Although Schweppes Australia paid a related Singaporean entity, PepsiCo Beverages Singapore, for the concentrate, 99.95% of that payment was reportedly passed on to another Singapore-based PepsiCo entity.
“No separate amounts were paid by [Schweppes Australia] to [PepsiCo/Stokley-Van Camp] even though those entities granted [Schweppes Australia] the right to use their valuable intellectual property,” the ATO told the court in its submission.
It argues that royalties were effectively embedded within the transaction and are therefore taxable.
PepsiCo maintains it did not receive any royalty income and that the ATO has misconstrued the nature of intercompany transactions. “No part of the amounts were paid to [them, and they] … did not derive any income consisting of a royalty,” its submission states.
The second prong of the ATO’s case involves the diverted profits tax, introduced in 2017 to prevent artificial profit shifting. It argues the exclusive bottling arrangements were designed to gain a tax benefit.
PepsiCo and Stokley-Van Camp counter that the payments in question were for goods purchased by Schweppes Australia from PepsiCo Beverages Singapore and that no broader tax-avoidance scheme existed.
The case went to the High Court after PepsiCo succeeded at the Federal Court level. The hearing is expected to test the reach of Australia’s taxation framework for foreign multinationals operating in the domestic market.
Jonathan Jackson, 2nd April 2025
