The High Court of Australia has granted special leave to the Australian Taxation Office (ATO) in its case against PepsiCo to appeal the Full Federal Court decision that overturned the original ruling that found the soft drink manufacturer liable for $3.6 million royalty witholding tax (RWHT). The case is also the first time the court has considered the diverted profits tax (DPT) since it was introduced in 2017.
The case was regarding two exclusive bottling agreements (EBAs) between PepsiCo and Stokely-Van Camp (both US companies and part of the PepsiCo Group) and Schweppes Australia to manufacture, bottle and distribute PepsiCo beverages.
The agreement involved Schweppes being given the concentrate to make the products. Another PepsiCo company was chosen by PepsiCO and Stokely-Van to sell the concentrate to Schweppes.
The dispute was whether payments made by Schweppes under the EBAs constituted royalties in terms of the RWHT or, if the payments didn’t constitute royalties, then was it a scheme that fell under the diverted profits tax.
The court found if RWHT provisions were found not to apply, the DPT provisions (a 40 per cent penalty tax rate) would have done so as an alternative and PepsiCo would have owed the ATO almost $29 million.
PepsiCo appealed to the Full Federal Court, which found in its favour and said the company was not liable for $3.6 million RWHT and dismissed the ATO’s cross-appeal on DPT, finding the company had not obtained a tax benefit in relation to its actions.
The court said the payments to Schweppes were only for concentrate and didn’t include any part that was a royalty for the use of PepsiCo and Stokely-Van’s intellectual property.
