Taxed Out: The big themes in Australian tax law from 2025 - and the disputes set to define 2026

Vanja:

Welcome to Ashurst’s Legal Outlook and our brand new Taxed Out series where we’ll explore emerging tax issues and the controversies shaping how businesses operate. I’m Vanja Podinic, a partner in Ashurst’s Tax Controversy practice and I’m joined by my colleague, Colin Little. In this first episode we are looking at the key tax controversy themes from 2025 and what they mean for 2026.

We will cover the ATO’s FY25 data, trends in disputes and settlements, and shifts in certainty programs. We’ll also touch on rising focus areas such as financing and marketing hubs, related-party dealings, private capital, and the major decisions that shaped the year.

To close this out, we’ll look ahead to the cases to watch in 2026, including Bendel and Tabcorp, to name a few.

I hope you enjoy the conversation.

Colin:

Starting with a few takeaways from the ATO's activities in 2025. That “whole of code” approach continues to be the default with the ATO examining arrangements through a broader lens, often blending transfer pricing with intangibles, Permanent Establishment (PE) rules, valuation, and anti avoidance approaches. One review can span multiple issues, so documentation and governance must be holistic, not siloed.

Vanja:

Exactly. Taxpayers can expect that scrutiny to continue into 2026 particularly in relation to financing and marketing hubs, international related party dealings, cross border investment structures, and domestic structuring, with rising attention on mischaracterisation, supply chain risks, and intangibles/royalties. Separately, in recognition of the growing size and scale of private capital investment in Australia, the ATO has established a Private Equity Program as part of the broader tax avoidance task force - focusing on tax risks associated with transactions and activities of both domestic and international private equity participants across the varying stages of the investment lifecycle.

Colin:

A lot of ATO programs to get across for 2025. Turning then to the certainty programs, there was a general decline in the take up of advanced pricing arrangements which in my view can be attributed to several factors but in particular the whole of code approach, which is adopted by the ATO, that we were just discussing. The reason for that is the ATO is frequently requesting whole of organisation information similar to the level of detail which is required in formal reviews by the ATO. You can appreciate that taxpayers are then reluctant to engage in this voluntary process if their compliance burden is high.

Vanja:

Adding to that, the data also shows that bilateral APAs are more frequently engaged over multilateral APAs, which is probably due to the relative simplicity and efficiency of the bilateral process compared to engaging multiple tax authorities applying multiple domestic tax regimes and treaties. In some instances, taxpayers might negotiate a bilateral APA in the first instance and to the extent to which they have similar global arrangements they may use the bilateral APA as a benchmark to negotiate subsequent APAs with other tax authorities. This will allow for a staged approach to manage risk across jurisdictions. Certainly the program continues to play a critical role in facilitating constructive engagement with the ATO and it complements other avenues available.

Colin:

Taxpayers really want simplicity and certainty, don’t they? On top of that, the Mutual Agreement Procedure is increasingly being used with the ATO reporting 30 open MAPs in FY25, and several MAPs resolved relating to transfer pricing. MAP is a valuable tool for taxpayers facing double taxation or inconsistent treatment across jurisdictions, and should certainly be considered as part of overall dispute resolution strategy. And of course, we had the welcome outcome in the Oracle decision confirming that domestic proceedings will generally be stayed pending the outcome of the MAP to preserve both treaty and domestic rights.

Vanja:

In terms of dispute resolution, the ATO reported that settled disputes resulted in the collection of 64% of the disputed amount. That figures seem substantial but we have to ask whether that includes penalties and interest? As a matter of strategy, higher primary tax positions may have been negotiated under settlements compared to the penalty and interest component in order to achieve a more satisfactory ultimate outcome for multinational taxpayers, which may not be reflected in this figure.

Colin:

Of course, taxpayers want a commercial outcome they can live with. Turning now to litigation which was very busy in 2025 - The ATO’s reported a high win rate for that year, which kept pressure on taxpayers, but we saw pivotal developments towards the second half of the calendar year on embedded royalties and DPT win for PepsiCo, procedural issues concerning domestic appeal rights in relation to the mutual agreement procedure in Oracle, as we just mentioned and disputes over the general anti avoidance rules in Merchant and Hicks.

The taxpayer’s win in Hicks is another success for taxpayers in an anti avoidance setting where the Commissioner pressed both s 45B and Part IVA. The Court emphasised that s 45B targets specific mischief and the section must be construed in light of that. In applying s 45B, it is not enough for the Commissioner to simply point to one group entity with profits available for distribution while another entity undertakes a capital return. On purpose, for both s 45B and Part IVA, the Court reiterated that obtaining tax advice, without more, does not evidence the requisite purpose for that section. Likewise, the mere fact that a taxpayer pays less tax by choosing one lawful transaction over another does not, by itself, engage Part IVA.

Vanja:

And that's something that's been known for quite some time, hasn't it? Now, let's turn into Division 855 which finally met the courts with YTL and Newmont testing the meaning of “real property” which is a big outcome for infrastructure and resources investors. The High Court also refused special leave in AusNet on the stapled group “top hat” CGT roll over, which left the participants without a cost base uplift but demonstrating again the controversy that can arise from a restructure. Alcoa had a win in its transfer pricing dispute concerning the supply of alumina, although that decision has limited application due to the fact that it was considered the old transfer pricing rules and of course a tribunal decision is not binding.

Colin:

A lot of activity in the Federal Court. It was a big year for the Bendel decision, where the Full Federal Court found in favour of the taxpayer, but the High Court did hear the Commissioner's appeal in late 2025, so let's keep posted on that decision. That case considers whether unpaid present entitlements owing to corporate beneficiaries are loans by way of the provision of financial accommodation and therefore requires compliant loan terms and repayments, or there is risk of a deemed dividend. Outside the income tax space, the High Court in G Global upheld federal legislation validating state foreign surcharge duty and land tax against treaty non discrimination arguments, and the NSW Court of Appeal held that payroll tax applied to Uber drivers, but watch this space now that the High Court has granted Uber special leave to appeal, which we expect to be heard in 2026.

Vanja:

The question is, what does all that mean for 2026? On the Court docket to watch this year is the High Court decision in Bendel, like you mentioned Colin; the Full Federal Court’s Tabcorp decision concerning the TOFA provisions; and the withholding tax case hearings in Coca Cola and The Star. We also know there are about 15 other taxpayers with cross border software issues under review, so we can expect to see some of those cases hitting the Courts in due time.

Colin:

We're looking forward to some of those decisions. We expect the ATO will continue to investigate transfer pricing intersecting with intangibles/royalties, PE risk will be a continuing area, and anti avoidance, especially for financing/marketing hubs and cross border structures. Taxpayers who are taking the time to ensure documentation tells one cohesive story across issues and jurisdictions, and can support the substance, pricing, and legal characterisation, will find themselves better prepared for the inevitable scrutiny from revenue authorities.

Vanja:

It's certainly been a busy 2025 and we expect the same for this current year.

Thank you for listening to this episode of Legal Outlook. I hope you found this episode insightful. To subscribe to future episodes of Taxed Out and to hear previous episodes, click on the link in the show notes or search Legal Outlook on Apple Podcasts, Spotify, or wherever you get your podcasts. And while you're there, please feel free to leave a rating or a review. And finally, to learn more about all Ashurst podcasts, visit ashurst.com/podcasts. In the meantime, thanks again for listening, and goodbye for now.