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Australia Issues Ruling On Hybrid Mismatch Rules

Monday, April 15, 2019

The Australian Taxation Office has opened a consultation on a draft Law Companion Ruling on the targeted integrity rule that will apply under the new hybrid mismatch regime.

The LCR has been developed to provide guidance to taxpayers regarding the Tax Commissioner's interpretation of the hybrid mismatch targeted integrity rule in subdivision 832-J of the Income Tax Assessment Act 1997.

The hybrid mismatch rules aim to prevent multinational companies from gaining an unfair competitive advantage by avoiding income tax or obtaining double tax benefits through arrangements that exploit differences in the tax treatment of an entity or instrument under the laws of two or more jurisdictions. Subject to some exceptions, the rules generally apply to certain payments made after January 1, 2019, and to income years commencing on or after January 1, 2019.

The integrity rule seeks to prevent offshore multinationals from effectively replicating a hybrid mismatch outcome by routing financing into Australia through an interposed entity in a no- or low-tax (10 percent or less) jurisdiction. When applicable, the rule will deny the borrower's entitlement to a deduction for the cost of funding owed to the interposed foreign entity.

The consultation on the draft LCR will close on May 10.