Australia: Federal Court pauses Oracle royalty tax case to permit treaty arbitration with Ireland

The Full Federal Court of Australia ruled in favour of Oracle, allowing its Mutual Agreement Procedure with Ireland to proceed by staying domestic tax proceedings, reaffirming taxpayers’ treaty rights to prevent double taxation over intra-group software royalty disputes.

Regfollower Desk

The Full Federal Court of Australia ruled in favour of Oracle Corporation Australia Pty Ltd on 21 October in its appeal against the Commissioner of Taxation, granting a stay of domestic tax proceedings to allow the continuation of a Mutual Agreement Procedure (MAP) under the Australia–Ireland tax treaty.

The case revolves around payments made by Oracle Australia to Oracle Ireland under intra-group software licensing agreements, which the Australian Taxation Office (ATO) classified as “royalties” under the Income Tax Assessment Act 1936 and the tax treaty. This classification triggered withholding tax obligations and penalties for the years 2013 to 2018.

Oracle initiated MAP proceedings with Irish tax authorities to address potential double taxation, but faced a suspension of the MAP by the ATO when it pursued domestic appeals to meet statutory deadlines.

Initially, the primary judge denied Oracle’s request for a stay, citing the public interest in resolving the broader issue of software royalty classification, which affects approximately 15 other taxpayers and has drawn criticism from the United States Treasury.

However, the Full Court overturned this decision, emphasising that the tax treaty guarantees taxpayers access to both MAP and domestic legal remedies. The Court found that the ATO’s suspension of the MAP undermined the treaty’s purpose and that public interest considerations could not override Oracle’s treaty rights in this instance.

By granting the stay, the Court allowed the MAP to proceed, potentially resolving the dispute through arbitration under the Multilateral Convention (MLI). This decision underscores the importance of preserving treaty mechanisms to prevent double taxation while balancing public interest in judicial clarity.