The Australian Treasurer Scott Morrison released exposure
draft legislation on November 24 to prevent entities that are
liable to Australian income tax from avoiding income taxation
or obtaining a double non-taxation benefit by utilising
differences between the tax treatment of entities and
instruments across different countries.
The most prevalent types of hybrid mismatch arrangements are
those that give rise to:
- A deduction/non-inclusion mismatch (e.g.
redeemable preference shares that are treated as debt in
Australia and equity in a foreign jurisdiction); and
- A double deduction mismatch (where a
deduction is available in two or more countries for the same
In these circumstances, under the new rules the hybrid
mismatch arrangement may be neutralised by, firstly,
disallowing a deduction, or, secondly, including an amount in
The hybrid mismatch rules are based on the recommendations
of the 2015 OECD report, 'Neutralising the Effects of Hybrid
Mismatch Arrangements', and also the recommendations of the
Australian Board of Taxation, including its consultation paper
of November 2015, entitled 'Implementation of the OECD
The Australian government had previously indicated that it
would implement the recommendations of the 2015 OECD report and
this exposure draft legislation will now be open for
consultation until December 22 2017.
The release of the Australian hybrid mismatch rules is part
of a growing global trend that has been preceded by the UK
enacting similar laws with effect from January 1 2017 and the
European Union's commitment to similar rules by January 1 2020.
It is also expected that other countries, including New
Zealand, will adopt similar rules in the foreseeable
The hybrid mismatch rules are principally contained in
proposed new Division 832 (sections 832-1 to 832-1020) of the
Income Tax Assessment Act 1997 (the 1997 Act) and will
generally apply to payments made on or after the day that is
six months following the legislation receiving royal
Broadly, a hybrid mismatch will arise if:
- An entity enters into a scheme that gives
rise to a payment; and
- The payment gives rise to either a
deduction/non-inclusion mismatch or a deduction/deduction
The new rules will principally apply to five types of
arrangements, as follows:
- A hybrid financial instrument
- A hybrid payer mismatch;
- A reverse hybrid mismatch;
- A deducting hybrid mismatch; or
- An imported hybrid mismatch.
In neutralising a particular mismatch, a deduction will be
disallowed or an amount included in assessable income.
Further specific Australian initiatives are proposed denying
imputation benefits and/or effectively tax exempt foreign
Tax whistleblower protections
Separately, the Australian government on October 23 2017
released exposure draft legislation outlining a new
whistleblower protection regime in Australian tax law with a
view to more readily exposing tax misconduct.
In addition to the new tax regime, the government will
introduce a single whistleblower protection regime in the
Australian Corporations Law to cover the corporate, financial
and credit sectors.
We are keenly awaiting the release of the exposure draft
legislation for the tax component of the proposed new corporate
collective investment vehicle regime that is expected to be
released prior to Christmas 2017.
Further, the Australian government is expected to provide
some direction on the tax policy approach to stapled
structures, which has been a major focus for taxpayers, the
Australian Taxation Office (ATO) and the Australian Treasury
Finally, the ATO is moving to settle certain of its
Multinational Anti-Avoidance Law (MAAL) disputes with taxpayers
and continues to elevate its transfer pricing, diverted profits
tax and related international tax focuses.
Jock McCormack (firstname.lastname@example.org)
DLA Piper Australia
Tel: +61 2 9286 8253
Fax: +61 2 9286 8007