Australia: Closed consultation on ATO Draft Taxation Ruling on character of payments in respect of software and intellectual property rights (TR 2024/D1)

On 1 March 2024, the Australian Taxation Office (ATO) closed its consultation on the draft taxation ruling (TR 2024/D1) regarding the character of payments made under software arrangements. The draft ruling updates previous guidance and covers a wide range of scenarios including digital software distribution, cloud computing, and scenarios where software is embedded in tangible goods. The ruling applies to cross-border payments and adopts a technical approach to identify payments as royalties for the use of copyright. It outlines payments considered royalties and those that are not and considers the overlay of Australia's tax treaties. The draft ruling also emphasises the relevance of license agreements and provides detailed scenarios for the characterisation of payments.