Australia: Updated draft tax ruling on royalties, software

TR 2024/D1 focuses on the electronic distribution of software, including cloud and subscription-based distribution models

TR 2024/D1 focuses on the electronic distribution of software

The Australian Taxation Office (ATO) on 17 January 2024 released a revised draft taxation ruling concerning the characterization of payments by a distributor for software-related rights as royalties subject to royalty withholding tax.

The draft ruling (TR 2024/D1) focuses on the electronic distribution of software, including cloud and subscription-based distribution models. However, the ATO is expected to apply some of the principles conveyed to a broader range of transactions.

The draft ruling replaces the initial draft ruling (TR 2021/D4), which was published in June 2021 alongside the withdrawal of Taxation Ruling TR 93/12, which outlined the ATO's longstanding views on the characterisation of payments under computer software arrangements.

The ATO has indicated that the final ruling will apply both before and after its date of issue. However, it does not prevent TR 93/12 from applying prior to its withdrawal in June 2021, provided it has been appropriately relied upon. The ATO has not provided guidance on how it will determine whether such reliance is appropriate.

The draft ruling is open for public consultation until 1 March 2024.

Key changes from initial draft ruling

The ATO appears resolved on taking a rights-based approach to the issue of characterization, focusing on the application of copyright law. However, the draft ruling has been substantially re-written from the initial draft ruling, with the following notable changes:

  • Increased focus on cloud-based distribution models
  • Consideration of the application of the royalty definition in Australia’s tax treaties, as well as application of the related OECD Commentary
  • Additional technical commentary in relation to both the application of tax principles and copyright law (particularly relating to the subset of exclusive rights of a copyright owner of “communicate the work to the public”)
  • Replacement of the eight simplified examples in the initial draft ruling with the three more detailed scenarios in the draft ruling

For more information, contact a KPMG tax professional in Australia:

Paul Sorrell |

Jennifer Ta |

Amanda Maguire |



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