Oracle Australia purchases enterprise software and hardware from Oracle Ireland and distributes these products in Australia.
The supply by Oracle Ireland to Oracle Australia is governed by complex contractual arrangements under which Oracle Australia made sublicence fee payments to Oracle Ireland. One bundle of rights which Oracle Australia obtained from Oracle Ireland related to Oracle Australia’s use of computer programs in which Oracle Ireland owned the copyright. The sublicence fee payments were made in the income years ending 31 May 2013 to 31 May 2018.
If these sublicence fee payments are found to be ‘royalties’ within the meaning of Art 13(3) of the Agreement between the Government of Australia and the Government of Ireland for the Avoidance of Double Taxation, Oracle Ireland will be liable to pay withholding tax on them.
An assessment was issued by the tax authorities where they concluded that the payments were royalties and that withholding taxes should therefore be paid by Oracle Ireland.
A MAP was then initiated by Oracle, and a Stay Application was filed with the Federal Court.
The Federal Court assessed Oracle’s application and in October 2024 decided not to grant the stay.
An appeal was then filed by Oracle with the Full Federal Court.
Judgment
The Full Federal Court overturned the decision and granted Oracle the Stay.
Excerpts
“The various double taxation agreements to which Australia is a party, including the double taxation agreement between Australia and the United States, provide mechanisms by which taxpayers can be relieved of the burden of double taxation. Where such double taxation is not avoided by the provision of credit in one jurisdiction for tax paid in the other, the primary method by which that objective is to be pursued is through the MAP. Where invoked by a taxpayer, a MAP involves, in the first instance, the competent authorities of the contracting states attempting to “come to an agreement” by which the double taxation may be relieved. While the arbitration provisions agreed between Ireland and Australia provide, as a default, a mechanism whereby no reasons are given for an arbitral tribunal’s determination, as set out above at paragraph 16, it is open to Ireland and Australia to vary the basis upon which an arbitration is conducted so that reasons are given. Article 16(3) of the MLI also provides for contracting states to resolve, by mutual agreement, any “difficulties or doubts arising as to the interpretation or application of [the DTA]”. As these provisions show, if the Commonwealth considers that “guidance” is desirable on matters of concern in its relations with other trading partners (such as the United States), progressing the Appellants’ domestic proceedings to conclusion is not necessarily the only way in which such guidance may be procured (cf PJ [66]). Conversely, and while accepting that an arbitral tribunal under a MAP may have regard to — in the sense of reading and taking into account — a decision of a domestic court of one of the contracting states, there is no basis on which to assume that domestic judicial determination of the instant proceedings would form the basis of any arbitral disposition under a MAP in relation to other taxpayers or residents of other countries.
“For these reasons, we do not consider that the evidentiary record, such as it was, supported the conclusion that there was a “dispute” between Australia and the United States whose resolution would be materially assisted by the judicial determination by this Court of the Oracle proceedings. It follows that, in our view, the primary judge erred in concluding that the “dispute” with the United States, together with the position of the 15 other taxpayers, established the existence of a public interest supporting the refusal of the stay. In the absence of those factors founding the presence of a “public interest” tending against the grant of a stay, and given our agreement with the primary judge’s conclusions regarding the nature of the DTA and MLI processes generally warranting a stay to avoid a taxpayer who wishes to preserve domestic appeal rights being effectively deprived of the opportunity to have a MAP progress, including to arbitration, it follows that the stay application should succeed.”
“It follows from the Commissioner’s concession (referred to above at paragraph 61), and also because we otherwise agree with the primary judge’s analysis of the DTA and MLI, and his Honour’s analysis of the non-treaty considerations favouring a stay, that the orders to be made should allow the appeals, revoke the primary judge’s order dismissing the applications to stay each of the three proceedings, and stay those proceedings until the conclusion of the MAP processes (including by any arbitration).”