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ATO targets US tech giants with royalty tax ruling
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ATO targets US tech giants with royalty tax ruling

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  • The Australian Taxation Office issued a final tax ruling classifying software and digital streaming fees as royalties, making offshore revenue transfers taxable.
  • The new tax policy could extract billions of dollars from US technology firms that operate cloud computing and digital media services in Australia.
  • The decision escalates cross-border trade and tax tensions between the Australian government and the US administration.

The Australian Taxation Office has released a final ruling that subjects offshore transfers of software and streaming revenue earned in Australia by US technology companies to a royalty withholding tax.

The policy shift establishes Australian tax liability for cloud computing services operated by Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT), alongside digital streaming platforms provided by Apple (NASDAQ:AAPL), Spotify (NYSE:SPOT), and Netflix (NASDAQ:NFLX).

“Other countries may not share the ATO’s view, creating two critical risks for multinationals: maintaining global consistency of their tax positions and the real prospect of double taxation where another authority disagrees,” said Jones Day Tax Partner Niv Tadmore.

Under the updated ruling, cross-border payments made to US parent entities face a 5 per cent withholding tax rate on gross payments without cost deductions, while payments routed to financial hubs like Singapore face a 10 per cent tax.

Following the announcement, share prices across the affected technology sector remained largely driven by broader market trends, with Alphabet closing up 0.5% at $335.31.

The ruling addresses corporate structures where US-based entities such as Meta (NASDAQ:META), Amazon, Netflix, Disney (NYSE:DIS), and Alphabet generated a combined $15 billion in local revenue during 2024 while paying $254 million in Australian company tax.

It also comes as the Australian government advances additional technology sector regulations, including a proposed 2.5% digital advertising levy under the News Bargaining Incentive and stricter enforcement measures for social media platforms.

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