Software Licensing In The ATO Crosshairs

The Australian Taxation Office (ATO) issued a new draft taxation ruling (TR 2024/D1) on 17 January 2024 in relation to the character of receipts in respect of software licensing and distribution arrangements, both domestic and cross-border. The ATO withdrew Draft Taxation Ruling TR 2021/D4 (TR 2021/D4) and replaced it with the updated draft for public consultation. The draft ruling provides the ATO's view on when such receipts will be considered royalties under the Income Tax Assessment Act 1936 (ITAA 1936) and the relevant tax treaties, which may affect the withholding tax obligations of the payer and the assessability of the recipient. The draft ruling adopts a broad interpretation of royalties, based on the nature and substance of the rights granted or transferred, rather than the form or label of the arrangement. Consistent with other published guidance, the draft ruling also provides examples of common software arrangements and the ATO's view on whether they give