PepsiCo, Inc v Commissioner of Taxation [2024] FCAFC 86

Federal Court of Australia

PepsiCo, Inc v Commissioner of Taxation [2024] FCAFC 86 Appeal from: PepsiCo, Inc v Commissioner of Taxation [2023] FCA 1490

File numbers: VID 27 of 2024 VID 28 of 2024 VID 74 of 2024 VID 75 of 2024 VID 76 of 2024 VID 77 of 2024

Judgment of: PERRAM, COLVIN AND JACKMAN JJ

Date of judgment: 26 June 2024

Catchwords: TAXATION – royalty withholding tax – where non-resident taxpayers entered into exclusive bottling agreements ('EBAs') with an Australian company ('Bottler') for the bottling and sale of beverages in Australia – where EBAs provided for sale of concentrate by the taxpayers or their nominated seller to the Bottler – where EBAs included a licence of the taxpayers' trademarks and other intellectual property but did not provide for a royalty – whether the taxpayers were liable to pay royalty withholding tax on part of the payments made by the Bottler under the EBAs – whether payments made by the Bottler were consideration for the right to use intellectual property – consideration of Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW) (1958) 100 CLR 392, Chief Commissioner of State Revenue (NSW) v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3; 221 CLR 496 and Commissioner of State Revenue (Vic) v Lend Lease Development Pty Ltd [2014] HCA 51; 254 CLR 142 – whether payments made by the Bottler were income derived by the taxpayers TAXATION – diverted profits tax – consideration of s 177J of Income Tax Assessment Act 1936 (Cth) – whether the taxpayers obtained a tax benefit in connection with a scheme – commercial and economic substance of the scheme and alternative postulates – results or consequences for the taxpayers of the scheme and alternative postulates – whether such postulates were reasonable alternatives to the scheme – whether the taxpayers entered into or carried out the scheme for a principal purpose of obtaining a tax benefit and reducing foreign tax liabilities