Atlassian commits to Australian IP retention in landmark $92 million settlement with ATO

In a landmark agreement with the Australian Taxation Office (ATO), Atlassian has agreed to a $92 million tax settlement after a three-year audit and negotiation process. The deal also includes a commitment by the software giant to retain its intellectual property (IP) in Australia, ensuring future tax contributions through internal company transactions.

Founded in 2002 by Mike Cannon-Brookes and Scott Farquhar, Atlassian has evolved into a global behemoth in the tech industry. Despite its success and expansive growth, the company has faced criticism for not paying corporate income tax in Australia, a situation that has changed with this new agreement.

The arrangement was detailed in Atlassian’s recent filings with the US Securities and Exchange Commission (SEC). It outlines a transfer pricing agreement with the ATO covering tax years from 2019 to 2025. As part of this agreement, Atlassian made a substantial cash tax payment of approximately US$60.5 million (roughly $92 million) in the last quarter of 2023.

This move comes after Atlassian’s strategic decision in 2022 to relocate its domicile from Britain to Delaware. This is a popular US state for big tech companies like Atlassian due to its favourable approach to business tax. Fellow Australian unicorn Canva also shifted its domicile to Delaware several years ago.

As per the Australian Financial Review, Atlassian said at the time that the move would “increase access to a broader set of investors, support inclusion in additional stock indices, improve financial reporting comparability with industry peers, streamline its corporate structure, and provide more flexibility in accessing capital”.

Atlassian’s annual report for 2023 also highlighted ongoing income tax audits which might affect its tax benefits in the next year, indicating the complexity of tax compliance for global tech companies.

The change for the company may go from a decrease of US1.5 million to a massive increase of US$9.3 million.

The fast-growing Atlassian has recorded mainly losses in recent years as it reinvests its soaring revenue in expansion and new projects.

For the quarter ended December 31, Atlassian’s revenue increased 21% to $US1.06 billion, surpassing $US1 billion in quarterly sales for the first time.

This financial milestone underscores the company’s robust performance and market confidence, despite the fluctuating stock prices in recent years.

Lessons for other multinational businesses

This agreement not only marks a pivotal moment for Atlassian in its commitment to tax compliance and intellectual property management but also sets a precedent for other home-grown multinational companies operating across borders.

The ATO has emphasised the importance of advanced pricing arrangements (APAs) — such as the one Atlassian has entered into —  in its compliance assurance strategy for multinational corporations, highlighting the benefits of tax certainty, risk management, and fostering mutual trust between businesses and the tax authority.

This clearly underlines the importance of proactive engagement with tax authorities to navigate the complex landscape of global taxation.

In general, APAs cover a three-to-five year period but can be reviewed if trading circumstances change. They also require annual reports.

According to the ATO, APAs:

• Provides the opportunity for you to reach an agreement with us on the future application of the arm’s length principle to your dealings with international related parties.
• Provides a mechanism for managing and mitigating your transfer pricing risk by providing you with greater certainty on a prospective basis.
• Fosters a constructive working relationship built on mutual trust which is established through early engagement and full and frank disclosure throughout the negotiation of the APA
• Reduces the potential for double taxation on your covered cross-border dealings.

“If done, we are administratively bound by the terms of the APA. Therefore, we will not impose additional income tax to that payable, based on the pricing worked out under the APA on the covered cross-border dealings,” the ATO says on its website.