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On March 8, 2018, the Australian Government released for public comments revised exposure draft legislation aimed at tackling hybrid mismatch arrangements.
The revised exposure draft legislation would implement the OECD’s reports on Neutralising the Effects of Hybrid Mismatch Arrangements and Neutralising the Effects of Branch Mismatch Arrangements. The legislation would incorporate the previously released exposure draft legislation as well as rules to address branch mismatch arrangements, and introduce the announced integrity rule.
The revised draft legislation will apply broadly to related parties, members of a control group, and structured arrangements. It is designed to neutralize any hybrid double non-taxation benefits by either denying deductions or including amounts in assessable income.
Treasurer Scott Morrison explained: “Hybrid mismatches exploit the differences in tax jurisdictions. This may occur, for example, where an amount is treated as interest in Australia, but is treated as a dividend in a foreign jurisdiction. Multinationals can use this mismatch to their advantage, to reduce the amount of tax they pay in Australia.”
The Treasurer added: “A mismatch can also occur where a deduction is available for the same payment in two or more jurisdictions. The proposed rules are designed to prevent companies doubling up on taxation benefits. The rules will work by either denying deductions or including amounts in assessable income.”
“It also puts into action a targeted integrity rule to address arrangements designed to circumvent the hybrid mismatch rules,” he explained.
Comments on the revised exposure draft legislation must be received by April 4.