[4000] Royalties and software
Title
Final Taxation Ruling
Income tax: royalties – character of receipts in respect of software and intellectual property rights
Purpose
Advice on the development and marketing of software was previously provided in Taxation Ruling TR 93/12W Income tax: computer software (now withdrawn). There is a need to provide updated guidance on modern forms of software distribution, including digital channels and cloud computing. This Ruling will provide the Commissioner’s view on the circumstances in which amounts in respect of the licensing and distribution of software will be royalties as defined in subsection 6(1) of the Income Tax Assessment Act 1936.
Expected completion
To be advised
On 13 August 2025, the High Court handed down its decision in Commissioner of Taxation v PepsiCo, IncExternal Link [2025] HCA 30. We are currently considering this decision, including any broader impact it may have on the reasoning set out in Draft Taxation Ruling TR 2024/D1 Income tax: royalties – character of receipts in respect of software and intellectual property rights. See High Court decision in Commissioner of Taxation v PepsiCo, Inc.
Comments
Draft Taxation Ruling TR 2021/D4 Income tax: royalties – character of receipts in respect of software published on 25 June 2021. Having regard to comments and submissions received in relation to TR 2021/D4, the Commissioner prepared a further draft Ruling and TR 2024/D1 published on 17 January 2024. Comments period closed on 1 March 2024 and all submissions are currently being considered.
Contact
IntangiblesArrangements@ato.gov.au
[4116] Thin capitalisation
Title
Multinational tax integrity – strengthening Australia’s interest limitation (thin capitalisation) rules
Purpose
On 8 April 2024, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Act 2024 (the Act) received Royal Assent.
The ATO is proposing to provide guidance setting out the Commissioner’s views on, and approach to, key aspects of the new thin capitalisation and debt deduction creation rules contained in Schedule 2 of the Act.
Consultation on potential guidance topics, prioritisation and form closed on 30 April 2024. On 10 May 2024, we published a summary of PAG topics, outlining topics raised by stakeholders and how these will be prioritised.
The high-priority topics we intend to resource immediately are:
- restructures in response to the new law
- third party debt test – key concepts, and
- interaction of transfer pricing and the new thin capitalisation rules.
We continue to engage with stakeholders on the high-priority topics to develop specific public advice and guidance products. We encourage stakeholders to provide specific, practical examples that clearly demonstrate issues raised, including reference to the relevant provisions and analysis of their potential application.
Expected completion date
Consultation on potential guidance topics, prioritisation and form closed on 30 April 2024.
See below for expected publication dates of proposed public advice and guidance.
Contact
Stephen Dodshon, Public Groups
Erin Gordon, Office of the Chief Tax Counsel
For more information, see Matters under consultation.
Title
Final Practical Compliance Guideline
Factors to consider when determining the amount of your cross-border related party finance arrangement – ATO compliance approach
Purpose
The third priority topic is practical guidance in relation to the arm’s length amount of a debt interest for transfer pricing purposes (Subdivision 815 B of the Income Tax Assessment Act 1997). This Guideline will focus on broad-based principles for taxpayers to consider in determining and testing the amount of their cross-border related party finance arrangement. It also outlines specific features of financing arrangements and transfer pricing analysis which we would view as being cause for concern.
Expected completion date
Early 2026
Comments
Draft Practical Compliance Guideline PCG 2025/D2 Factors to consider when determining the amount of your inbound, cross-border related party financing arrangement – ATO compliance approach published on 29 May 2025. Comments period closed on 14 July 2025.
Contact
Nick Trotman, Public Groups
[4168] Royalty withholding tax and software arrangements
Title
Final Practical Compliance Guideline
Low-risk payments relating to software arrangements – ATO compliance approach
Purpose
Draft Practical Compliance Guideline PCG 2025/D4 Low-risk payments relating to software – ATO compliance approach provides practical guidance relating to our view set out in Draft Taxation Ruling TR 2024/D1 Income tax: royalties – character of payments in respect of software and intellectual property rights.
The final Guideline will provide guidance about when we consider there is a low risk that cross-border payments in connection with software arrangements have been mischaracterised and we will not apply compliance resources.
Expected completion
To be advised
Comments
PCG 2025/D4 published on 6 August 2025. Comments period closed on 17 September 2025. All submissions are currently being considered.
Contact
IntangiblesArrangements@ato.gov.au
[4211] Thin capitalisation and the attribution of risk-weighted assets to Australian branches of foreign banks – ATO’s compliance approach
Title
Draft Practical Compliance Guideline
Thin capitalisation – attribution of risk-weighted assets to Australian branches of foreign banks
Purpose
A draft Guideline is being developed on a thin capitalisation issue which impacts foreign banks that conduct their banking business in Australia through a branch. Relevantly, the draft Guideline will outline the ATO’s compliance approach to determining the risk-weighted assets attributable to a branch for the purposes of the thin capitalisation rules for inbound banks in section 820-405 of the Income Tax Assessment Act 1997.
This guidance builds upon feedback received on Discussion paper Thin capitalisation – attribution of risk weighted assets to Australian branches of foreign banks, which closed on 31 May 2024.
Expected completion
Early 2026
Contact
Johanna Tang, Public Groups
[4249] Temporary absences from foreign service under section 23AG – amendment to existing administrative approach [new]
Title
Draft update to Taxation Determination
Taxation Determination TD 2012/8 Income tax: what types of temporary absences from foreign service form part of a continuous period of foreign service under section 23AG of the Income Tax Assessment Act 1936?
Purpose
The existing administrative approach in TD 2012/8 for workers who undertake temporary work-related absences directly related to their foreign service is being updated. This is to better reflect the intention that only short, unexpected work-related absences will form part of a continuous period of foreign service.
Expected completion
March 2026
Contact
Shaun Thomas, Individuals and Intermediaries
Phone: (03) 6235 6799