Oracle wins landmark stay: what the Full Federal Court’s decision means for multinationals seeking to rely on tax treaties to resolve disputes

The Full Federal Court’s decision in Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145 was a significant procedural win for Oracle, granting a stay of domestic proceedings pending the outcome of the Mutual Agreement Procedure (MAP) with Ireland. The decision was unanimous and provided detailed reasoning, particularly in rejecting the Commissioner’s “public interest” arguments for refusing a stay. The decision is important for any group that:

• pays cross-border royalties or service fees for software or other intellectual property (IP) and is facing a challenge regarding its position by the Australian Taxation Office (ATO);
• is engaged (or contemplating engaging) in a MAP with the ATO and a treaty partner^[1]; and/or
• seeks to rely on rights under a double taxation agreement. 

Key takeaways

1. Royalty issue still live

• The decision addresses the procedural issue of whether a stay should be granted. The underlying royalty issue remains to be determined at a future date by MAP or court proceedings at the election of the taxpayer.
• However, the Court did give some views on the challenges associated with royalty cases. The Court highlighted that determining whether payments are royalties is a fact-dependent exercise, involving detailed analysis of the terms of licence agreements. Groups should review software and other IP arrangements – particularly the scope of reproduction, adaptation and distribution rights to assess the strengths and weaknesses of their position and the likelihood of a challenge by the ATO.

2. Stay granted – MAP first, litigation later

• The Court ruled that Oracle’s Federal Court appeals should be stayed until the Australia–Ireland MAP (including any arbitration under the Multilateral Instrument) is completed.
• The Court acknowledged that taxpayers cannot pursue MAP and domestic court or tribunal proceedings simultaneously. However, forcing the taxpayer to litigate domestically while the MAP was suspended would be inconsistent with the treaty framework to which the Australian Government has committed. This framework indicates that taxpayers should have access to both MAP and domestic remedies (at their election).
• The Court noted that the Commissioner had proceeded, for a significant amount of time, on the basis that he would defer making decisions on the objections so as to allow the MAP to progress without the need for the taxpayer to commence court proceedings. When and why the Commissioner changed his view was not addressed in the evidence.

3. Public-interest argument rejected 

• The Commissioner presented insufficient evidence to persuade the Court that public interest demanded that the matter should not be stayed.
• The Commissioner relied on an assertion that there were 15 other cases that required the consideration of the definition of “royalty” in connection with software distribution and related arrangements. Given the fact-dependent nature of royalty cases, the Court found that there was insufficient evidence that these cases would be assisted by a judicial decision in the Oracle case. In particular, there was no evidence regarding:
  • the nature of the 15 taxpayers’ “arrangements”;
  • the aspects of the definition of “royalty” that were in dispute in those cases;
  • how the disputed aspects arose in relation to the 15 taxpayers’ arrangements; or
  • whether each of the 15 taxpayers was involved in substantively the same dispute as any other (or Oracle).
• The Commissioner also relied on two letters that had been sent by US Government officials to Australian Treasury representatives as indicating that there were disagreements between Australia and foreign governments about the application of royalty withholding tax. The Court found that there was insufficient evidence that there was widespread disagreement or, if there was, that a judicial decision in Oracle would assist the resolution of those disagreements. In that regard, the Court’s view was that the disagreements between sovereign nations concerning international treaties are primarily political questions to be determined at the level of the executive or parliament. 

4. Court confirms taxpayer choice is paramount 

• Unless there are compelling countervailing factors, courts should generally defer domestic proceedings when a taxpayer wishes to pursue MAP.
• The ATO’s power to suspend MAP once litigation starts does not override the Court’s power to grant a stay to enable the taxpayer to continue with MAP. 

Implications

• Will there be an appeal? The Commissioner has the right to seek special leave to appeal to the High Court of Australia. It remains to be seen whether the Commissioner is minded to seek special leave. The case raises important questions about the interaction between domestic tax litigation and international treaty dispute resolution. In addition, the Commissioner has previously shown a willingness to pursue appeals in other high-profile, precedent-setting cases. Usually, special leave is only granted in cases involving questions of law of public importance or where the interests of justice otherwise require it. The High Court is less likely to intervene where the appeal turns on facts rather than a question of law. The Full Federal Court’s decision appears particularly robust, strongly reasoned and based on the facts (particularly noting the insufficiency in the Commissioner’s evidence regarding the public interest arguments). The reasoning of the Court closely followed established principles regarding the discretion to grant a stay.
• Leverage MAP confidently: There is a growing number of cases involving the characterisation of software and IP payments, reflecting the ATO’s focus on technology and digital economy issues. Multinationals can initiate (or continue) MAP requests without fear that in doing so they may be forced into foregoing Australian court rights. If a statutory deadline forces the filing of an appeal in the Federal Court then there is a good prospect of the grant of a stay in the Court proceeding – unless the Commissioner can adduce evidence to support a fact-based public-interest reason as to why the case ought to proceed. Based on the observations of the Court, this may be a challenge for the Commissioner in any future cases.

Looking ahead

Oracle’s victory does not resolve whether its payments are royalties – those issues for Oracle will now be thrashed out in the Australia–Ireland MAP (and, if necessary, arbitration), and are likely to remain confidential. But the Court has delivered an important procedural safeguard: it is taxpayers that get to choose between treaty rights and domestic appeals.

Taxpayers that have discounted MAP as an option in their dispute-resolution strategies may wish to reassess their stance in light of this case.

Assuming special leave is not sought, it will be interesting to see if the ATO will look to finalise draft taxation ruling TR2024/D1. Given the Full Federal Court’s comments about the fact-dependent nature of these issues, a ruling may have limited utility. You can read more about our thoughts on this ruling in our earlier article. 

^{[1] In the latest MAP statistics available, the ATO reported 74 MAP cases on hand as at 31 December 2023. About 55 per cent of the ATO’s MAP cases relate to transfer pricing disputes.}