ATO software tax ruling raises double taxation concerns
The possibility of paying tax twice on the same income is driving opposition to Australia’s software tax ruling, with US officials and multinational companies warning that the approach could affect investment decisions.
The dispute centres on how payments to overseas parent companies are classified. The Australian Taxation Office considers relevant software and intellectual property fees to be royalties, while US authorities disagree with that treatment.
Tax experts cited by The Australian Financial Review said the US Internal Revenue Service might not give US companies a credit for Australian tax on those payments. That could leave the same income exposed to taxation in both countries.
Why companies see an investment risk
The ATO’s final ruling, released last month, covers software revenue generated in Australia and transferred offshore. Its position is that relevant service fees contain a copyright or intellectual property component and are therefore taxable as royalties when paid to foreign parent companies.
The services discussed in the report include cloud computing supplied by Amazon, Google and Microsoft, as well as music and video streaming offered by Apple, Spotify and Netflix.
Speaking at a tax conference in Melbourne, Rebecca Burch, the US Treasury’s deputy assistant secretary for international affairs, said companies were concerned about uncertainty and possible double taxation.
Burch warned that taxing income twice could weaken investment returns to the point where committing capital to a local market no longer made financial sense. She urged countries to prioritise long-term growth rather than immediate revenue gains.
The US Treasury has raised its concerns about the ATO’s approach in writing with the Australian Treasury at least twice over the past five years.
Concerns extend beyond major technology groups
Tax executives at Microsoft, Disney and Nestle said the ATO’s approach would influence their investment decisions.
Microsoft tax policy counsel Tom Roesser highlighted concerns for smaller businesses, companies making losses and those seeking to expand overseas. He said a broader royalty definition could increase complexity, disputes and barriers to international trade and investment.
James Parent, Nestle’s head of group tax, also expressed concern about double taxation.
Jones Day global tax partner Niv Tadmore said the ruling could affect Australian-based international businesses, including Atlassian, Canva and CSL, rather than only US technology companies.
The Financial Review reported that Meta, Amazon, Netflix, Disney and Google generated a combined $15 billion in Australian revenue in 2024 and paid $254 million in company tax. It said offshore distribution fees and advertising arrangements involving parent companies meant tax was paid on substantially lower profits.
ATO continues consultation on enforcement
ATO chief tax counsel Fiona Dillon sought to ease concerns about the disagreement with the US at the International Fiscal Association congress.
Dillon said the agency had worked to explain its position clearly and transparently. Further consultation on enforcement was underway.
Burch was not reassured by that response, saying the concerns she was hearing in meetings were increasing.
SOURCE ATTRIBUTION:
Based on reporting by The Australian Financial Review (Patrick Durkin), published 20 October 2026.
