The Australian Taxation Office (ATO) has won a victory in court over a $55 million IBM tax bill that the company had disputed in the Federal Court.
IBM had received a private ruling from the taxation office saying that it could pay a lesser tax in 2004 for royalties received from IBM Australia. The lower tax followed the argument that only some of the activities IBM Australia carried out involved using IBM's intellectual property rights or trademarks. Therefore, only the payments for those activities were subject to the royalty tax.
IBM and its subsidiary IBM World Trade Corporation continued to pay the lesser tax amount from 2005. In 2006, the company also attempted to get earlier tax amounts back because it believed the private ruling should have been applicable for the period before it was made.
The ATO denied the refund and in 2009 sent a letter to IBM and its subsidiary IBM World Trade Corporation requesting that they pay additional taxation amounts of around $26 million and $29 million.
IBM sought that the demand letters be set aside, and wanted a declaration that only the fees IBM Australia pays that fit in the definition of a "royalty" in the Double Taxation Agreement between Australia and the United States should be taxed.
However, yesterday the court ruled against IBM, first picked up by ITnews, saying that that the company wasn't entitled to a declaration that it wasn't liable to withholding tax on the full amount of fees paid. The court also ordered that IBM pay the ATO's legal costs.