IBM loses two-year tax battle

Australian Tax Office wins costs.

IBM has lost a $55 million Federal Court case about how fees paid to it by its Australian subsidiary should be taxed.

The case was filed by US-based IBM Corporation, IBM World Trade Corporation and local subsidiary IBM Australia against the Commissioner of Taxation in July 2009.

Under a 1987 software licensing agreement, IBM Australia paid 40 percent of its revenues to IBM in exchange for the right to "use, distribute and market programs" created in the US.

IBM sought to exempt a portion of the payments from being classified as ‘royalties’, so as to avoid paying Australian withholding tax on those fees.

But Justice Annabelle Claire Bennett yesterday dismissed IBM’s claims, ruling that it was liable to withholding tax on the full amount of software licensing fees during all periods under dispute.

The Tax Office declined to comment on the ruling today, noting that it was still considering the "nuances" of the decision.

“Whilst IBM Corporation is disappointed with the Court’s decision, it has fully complied with relevant

A spokesman for IBM Australia said the company too was reviewing Justice Bennett's decision.tax laws, met all of its tax obligations, and will continue to do so,” he told iTnews.