Power, Structure and Fairness: When One Payment Serves Multiple Purposes

Home › Case Studies › Tax law › Intellectual Property › Commissioner of Taxation v PepsiCo Inc and others [2025] HCA 30 (13 August 2025)

Published: 19 November 2025 | Reviewed: 19 November 2025
(3-minute read)

Many clients fear that in complex commercial disputes, the cost impact of multi-entity arrangements becomes difficult to see until late. That reaction is understandable, when contracts overlap and payments perform several functions at once, the pathway through a dispute can shift quickly.

Case Summary

In ATO v PepsiCo; PepsiCo Inc v FCT; Stokely-Van Camp Inc v FCT [2025] HCA 30, the High Court considered whether part of the price paid by an Australian bottler for concentrate was, in substance, consideration for the use of intellectual property belonging to PepsiCo and Stokely-Van Camp Inc (SVC).

The Court held that the intellectual property licences and the concentrate supply formed a “single integrated product”, and that part of the concentrate payment

“must to some extent be part of what moved PepsiCo and SVC to grant SAPL the intellectual property licences”.

Because the payment was in substance partly for rights to exploit brand and formulation IP, it qualified as royalty income under Australian tax law.

The Court dismissed the appeals, upholding the Commissioner’s assessment that royalty withholding tax applied.

Risk Classification

In-litigation risk — cost-incentive failure arising from complex, integrated commercial structures.

Core Legal Risk Identification

The High Court emphasised the objective character of the arrangement. Even where agreements appear separate, the controlling question is what “moved” the parties: what the consideration was truly paid for. The judgment confirms that where a single payment serves multiple functions, supply, branding, formulation access, territory protection, tribunals may recharacterise its components.

This exposes a client-side risk:

when a dispute turns on how integrated arrangements are perceived, the strategy, timing and cost trajectory can pivot rapidly,

often away from the pathway first anticipated. Under your safeguard rules, because this is a cost-incentive risk, not an independence or conflict issue, the required safeguard is cost-alignment (one-path funding).

Default Structural Context

Clients often express uncertainty about timing windows, cost exposure, and which litigation or settlement path to prepare for. Structural clarity, mapping pathways, sequencing decisions, and modelling budget scenarios, helps navigate that uncertainty without implying the underlying commercial arrangements could have been altered.

Why It Still Matters

Integrated supply and licensing structures are now common in franchising, FMCG, manufacturing, and cross-border distribution. When one payment supports multiple commercial objectives, a dispute can involve simultaneous questions of characterisation, attribution and counterfactual assessment. The PepsiCo decision confirms that courts will look beyond contractual labels and focus on substance.

For modern businesses, this means the risk is not only legal but strategic:

the dispute’s direction can shift from supply terms to IP rights to tax attribution within the same proceeding,

depending on how regulators frame the underlying consideration.

How to Avoid the Same Trap

For this matter, the correct safeguard is cost-alignment (one-path funding).

Two lawyers often cost less than one - because you fund one path, not both.

Typical models fund both settlement negotiations and litigation preparation at the same time. A safer structure separates the roles: the courtroom lawyer manages the litigation lane, while the client-side lawyer manages settlement, timing, and cost oversight through escrow. This prevents clients from paying for both pathways simultaneously when characterisation issues, like the ones in PepsiCo, increase uncertainty about which path will ultimately be required.

Cost-alignment ensures clients fund only the path they actually take, reducing exposure when a dispute’s focus shifts due to a regulator’s re-characterisation of integrated arrangements.

The Practical Lesson

Where payments support intertwined commercial purposes, disputes can develop unpredictably. Planning early for a single funded pathway means clients maintain visibility as tribunals examine substance over form. The narrower and clearer the funding path, the easier it is to navigate recharacterisation without carrying duplicated legal costs.

See how one-path funding, escrow safeguards and role separation operate in practice on our Two-Lawyer Collaboration & Escrow Oversight page.

For insight into how independence is kept visible, no referral fees, ACNC governance and trust-account audits, visit our Independence page or book a confidential discussion.

By Nicky Wang
Principal Solicitor
Legal Liaison Ltd (trading as Clean Law)
Prepared in accordance with public-interest governance,
annual Law Society trust-account audits, and ACNC-reported standards.

Disclaimer: This page is intended to provide general information only and is not legal advice. The contents may not reflect the most current legal developments and do not take into account your individual circumstances. You should not act or refrain from acting on the basis of this information without obtaining legal advice tailored to your situation.