President Donald Trump speaks with Australian Prime Minister Anthony Albanese on the West Colonnade by The White House
Following on the heels of the News Bargaining Incentive (NBI), Canberra has opened a second front in its campaign against US tech companies.
On September 4, the Australian Taxation Office (ATO) finalized TR 2026/2, reshaping the domestic and cross-border tax treatment of software and intellectual property, reclassifying certain software distribution, intermediation as royalties potentially subject to Australian royalty withholding tax. The ATO has engineered an extraterritorial tax grab.
This directly affronts established international tax norms and calls for a firm response from the Trump Administration.
The global consensus, anchored in Paragraph 14 of the OECD Commentary on Article 12, maintained a bright-line distinction: payments made merely to acquire and distribute standard copies of software are commercial business profits, not royalties.
Cross-border payments flowing from Australian intermediaries to offshore IP owners, historically treated as ordinary business or service income, are now exposed to an up-to-5% Royalty Withholding Tax under the U.S.–Australia tax treaty framework. Moreover, because the triggering event is the payment date rather than the contract inception date, the ruling applies to arrangements both prior to and after its September 4 release, leaving American groups exposed to retroactive compliance challenges.
With different jurisdictions potentially taking different positions on the same payment, multinational businesses may also face conflicting tax claims and the prospect of being taxed twice. Companies inevitably pass these compliance costs onto consumers and local small businesses through higher subscription fees, increased software prices, and ad marketplace markups.
Canberra is now using tax rulings to extract revenue from U.S. companies while disregarding established treaties, following a path reminiscent of Europe’s Digital Markets Act (DMA). approach. When the U.S. government faced European digital service taxes, it responded with Section 301 investigations and threatened tariffs of up to 100%. President Trump warned trading partners against imposing DSTs on America’s tech sector. Australia is now courting the same kind of trade retaliation from Washington.