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08 March 2018 Australia releases revised exposure draft on hybrid mismatch tax rules including integrity and branch measures for public consultation On 7 March 2018, Australia's Treasurer released a revised Exposure Draft - Treasury Laws Amendment (OECD Hybrid Mismatch Rules) Bill 2018 (the RED) - for public consultation. The Bill will implement the Organisation for Economic Co-operation and Development (OECD) October 2015 Report on Base Erosion and Profit Shifting (BEPS) Action 2 - Countering the effects of Hybrid Mismatch Arrangements. The RED contains certain measures announced but not included in the first exposure draft which was released on 24 November 2017 (the first ED), namely the additional Australian integrity rules and branch hybrid mismatch rules.1 The RED includes measures that were announced but not included in the first ED. The two more significant of which are: In the 2017-18 Mid-Year Economic and Fiscal Outlook (MYEFO), the Government announced an extension of the hybrid mismatch rules to implement the recommendations in the OECD Branch Mismatch Arrangements Report (the Report). Subdivision 832-F implements recommendations 1 and 3 of the Report. This subdivision will:
As also announced during the 2017-18 MYEFO, the Government has introduced a further targeted integrity rule which is not contained in the OECD recommendations. This rule is intended to prevent multinational groups from being able to enter into intra-group financing arrangements designed to circumvent the hybrid mismatch rules. In particular, the use by multinational groups of foreign interposed entities that result in an Australian income tax deduction (e.g., interest on a loan) and the imposition of foreign income tax on the related payment at a rate of 10% or less. The Government's concern from an integrity perspective is that such structures could be used to effectively replicate a deduction/non-inclusion outcome. Broadly, this measure will operate to disallow an Australian income tax deduction of an entity (the paying entity) for a payment of interest (or a payment of a similar character) to a foreign entity (the interposed foreign entity) where the following conditions are met:
The integrity rule has certain exclusions and a measure that specifically deals with back to back arrangements. Broadly, the law will be applied to Australian income tax deductions which are claimed six months after the date of Royal Assent of the legislation. Consistent with the first ED, there is no grandfathering of existing arrangements. As the RED is open for consultation until 4 April 2018, the earliest a Bill can be introduced into Parliament will be during the winter Parliamentary sittings which commence on 8 May 2018. Given the Government's legislative timetable, a start date of 1 January 2019 appears likely, however the start date will ultimately depend on the timing of the passage of the bill through Parliament. Multinational groups should consider the application of the hybrid mismatch rules to their existing structures and work to implement a strategy for unwinding any impacted hybrid structures. In this regard, matters that may require deeper analysis include legal matters, Foreign Investment Review Board considerations, tax issues including foreign currency tax implications, stamp duty and accounting issues. These issues may involve significant lead times if tax, legal and accounting are not aligned. 1 See EY Global Tax Alert, Australia releases draft anti-hybrids law, dated 28 November 2017.
Document ID: 2018-5380 |
