ATO tax ruling targets billions in offshore tech revenue
The Australian Taxation Office has finalised a ruling that could significantly increase the Australian tax exposure of major US technology groups by treating some payments for cloud, software and streaming services as royalties.
The ruling applies to income earned in Australia and transferred offshore to overseas parent companies. It potentially affects services operated by companies including Amazon, Google and Microsoft, as well as music and video streaming services sold by Apple Music, Spotify and Netflix.
The change goes beyond the GST already charged to consumers. The ATO’s position is that certain services involve copyright or other intellectual property rights and can therefore give rise to royalty withholding tax when payments flow offshore.
Royalty treatment broadens the tax reach
Under the ruling, the ATO said software intermediation arrangements can qualify as royalties for Australian royalty withholding-tax purposes.
The report said up to half of a royalty payment could be taxable in Australia. It cited withholding rates of 5 per cent on gross payments to US parent companies, 10 per cent for companies in Singapore and 30 per cent where Australia does not have an international tax treaty.
A corporate tax adviser quoted anonymously in the report said it was difficult to calculate the total revenue at stake, but the amount could reach billions of dollars.
The ruling is significant because several large technology companies generate substantial Australian revenue while transferring sizeable amounts offshore through service fees and reseller arrangements.
Meta, Amazon, Netflix, Disney and Google generated a combined $15 billion in Australian revenue in 2024, according to the report, while paying a combined $254 million in company tax. Google and Meta transferred almost $11 billion to offshore entities through service fees and reseller payments in 2025.
US concerns raise double-taxation risk
The decision has also intensified a long-running tax disagreement between Australia and the United States.
The US Treasury wrote to the Australian Treasury in April 2024 expressing concerns about an earlier draft of the ruling, including whether the approach could conflict with the bilateral tax treaty. The report said the US did not agree with the ATO’s analysis that the relevant payments should be treated as royalties.
Tax experts said a key risk is that the US Internal Revenue Service may not provide US companies with a credit for tax paid in Australia if the two countries apply different tax treatments, potentially creating double-taxation issues.
Jones Day partner Niv Tadmore said the ruling could have broad consequences for multinational businesses and governments because other jurisdictions may not adopt the ATO’s interpretation.
Corporate Tax Association executive director Michelle de Niese said the final ruling showed the ATO had not retreated from its earlier position and described taxation of intangible assets as an increasingly important area of international tax tension.
Wider pressure on multinational technology companies
The ruling comes alongside other policy measures affecting global technology groups in Australia.
The report said US technology companies have opposed the Albanese government’s News Bargaining Incentive, which proposes a 2.5 per cent charge on Australian digital advertising revenue for large technology companies that do not reach content agreements with local media organisations.
The government is also preparing tougher rules and penalties around the social media ban for people under 16, while Communications Minister Anika Wells is expected to introduce digital duty-of-care legislation.
Together, the developments add to a broader policy debate over how multinational digital businesses are taxed and regulated when revenue is generated locally but significant payments are transferred offshore.
SOURCE ATTRIBUTION:
Based on reporting by John Kehoe, with additional reporting by Zoe Samios. Source publication,
