Oracle hits pause

The Australian Full Federal Court (FFC) recently handed down its judgement in Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145. In doing so, the FFC overturned a decision of a lower court, the Federal Court, and ruled in favour of Oracle by granting a stay on domestic proceedings against the Australian Tax Office (ATO) pending the outcome of a Mutual Agreement Procedure (MAP) with Ireland.

The FFC’s decision related only to whether or not a stay should be granted on domestic proceedings it did not deal with any of the substantive matters at issue between Oracle and the ATO. The parties are involved in a dispute regarding whether payments by Oracle Australia to Oracle Ireland for software distribution rights constitute ‘royalties’, on which withholding taxes ought to have been applied, for the purposes of the Australia-Ireland Double Tax Agreement (the DTA).

The dispute had been submitted to MAP under the DTA for resolution. Oracle also filed an appeal with the Federal Court to preserve its domestic right of appeal.

Decision of the Federal Court

At the initial hearing before the Federal Court, Oracle sought a stay on the domestic proceedings while the matter progressed through MAP. In support of its stay application, Oracle argued that while it had applied for MAP under the DTA, it had also been compelled to issue the domestic proceedings in order to preserve its right of appeal.

The Federal Court refused Oracle’s request on public interest grounds. The refusal was influenced by an ATO submission indicating that there were fifteen other taxpayers with similar matters in dispute who would benefit from a domestic ruling on the meaning of ‘royalty’ under Australia’s double tax agreements. Also, it was contended by the ATO that there was a potential dispute between the US Department of Treasury and the Australian Government regarding what constitutes a royalty for double tax treaty purposes and that judicial commentary on the matter would be of assistance in resolving this dispute.

Before deciding the matter on the grounds of public interest, the judge made the following useful observations on the interaction between domestic remedies and MAP:

• A final determination by a domestic court would bind the competent authority of that state, such that it would not be possible for a MAP outcome to be reached by consensus that would contradict the domestic judgment
• The refusal of a stay may give rise to a risk of double taxation, as the ATO and the Irish tax authorities may reach different conclusions on the meaning of ‘royalty’ for the purposes of the DTA
• Refusal of a stay may force a taxpayer to choose between MAP and domestic remedies. This is inconsistent with the terms of both the DTA and the Multilateral Instrument (MLI) which indicates that a taxpayer should have access to both mechanisms. In particular, Article 16(1) of the MLI preserves the rights of taxpayers to access MAP ‘irrespective of the remedies provided by domestic law’.

Decision of the FFC

On appeal, the FFC unanimously overturned the decision of the Federal Court and granted a stay on the domestic proceedings.   

On the public interest argument, the FFC cited the recent decision in Commissioner of Taxation v PepsiCo Inc. [2025] HCA 30, in emphasising that cases of this nature are fact-specific and turn on the contractual terms agreed between the parties. The FFC concluded that a decision in the current case was unlikely to shed any meaningful light on the matters in dispute in the fifteen other cases referenced in the earlier trial. The FFC further noted a determination of the current case was also unlikely to provide any guidance which would materially contribute to resolving the issue with the US Department of Treasury. In fact, the FFC concluded that, given that the potential dispute was one between two sovereign nations, the more appropriate avenue for resolution of the matter was diplomatic means.

The FFC agreed with the conclusions reached by the Federal Court on the interaction between MAP and domestic remedies, concluding that under the terms of the DTA it is the taxpayer’s choice, and not that of the tax authority, to elect between domestic remedies and MAP. The FFC emphasised that it would be inconsistent with the double tax treaty framework if a tax authority could essentially force the taxpayer’s hand towards a certain resolution mechanism.

The FFC in granting the stay on domestic proceedings held that, absent compelling circumstances, the general position should be that a deferral of domestic proceedings is permitted where a taxpayer wishes to pursue resolution of the matter via MAP.

Why this decision is important?

The FFC decision in the Oracle case should be viewed as significant for taxpayers seeking to invoke MAP as a means of resolving a cross-border tax dispute. The decision underscores a taxpayer’s right to choose between MAP and domestic remedies in seeking to resolve a tax dispute.

For more information, please contact your usual A&L Goodbody Tax contact.

Date published: 3 December 2025