Juve signed a loan agreement with Atletico in September 2020, but the finances of the deal always looked to be on the expensive side.
Although initially a one-year loan agreement worth €10million and with a purchase option of €45m, Juve had the right to extend the temporary stay by another season for an extra €10m, which would bring the release clause down to €35m.
But Juve had reportedly been trying to negotiate the purchase figure down since the end of the season, with stories from Italy suggesting they offered €15m, at least €11m less than Atletico's asking price.
A third year on loan had emerged as an option, but seemingly Juventus opted to walk away from the deal as they confirmed on Thursday the striker's second spell at the club is over.
As part of a farewell note on their website, Juventus said: "Alvaro Morata's adventure at Juventus has come to an end.
"The Spanish forward, on loan from Atletico Madrid over the last two seasons, leaves the Bianconeri for the second time and returns to the ranks of Los Colchoneros."
Although Morata's Atletico contract expires next year, rumours at the end of the season suggested the club saw him as a potential short-term solution to Luis Suarez leaving.
The Uruguayan did not have his contract renewed and is expected to join River Plate in Argentina.