Tax Integrity – clarifying the operation of the hybrid mismatch rules
The Government has announced that it will make a number of minor amendments to Australia’s hybrid mismatch rules to clarify their operation. However, these are not expected to have a great impact on revenue over the forward estimates period.
Hybrid mismatch rules
The Australian Hybrid Mismatch legislation came to force in August 2018 and the rules it introduced aim to prevent multinational companies from gaining an unfair competitive advantage by avoiding income tax or obtaining double tax benefits through hybrid mismatch arrangements. These arrangements exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.
The purpose and content of the current rule is not expected to change. Rather, the Government is proposing to clarify how the rules apply to certain groups and trusts, specifically limiting the meaning of foreign tax, and specifying that the integrity rule can apply where other provisions have applied to provide greater certainty to taxpayers in complying with the rules.
This measure will apply to income years commencing on or after 1 January 2019, with the exception of the amendments to the integrity rule.
Clarifying the operations of these rules will bring a very much welcomed increase in certainty with respect to the practical application of these complicated measures. This will be particularly important as the Tax Avoidance Taskforce increases its activities in connection with multinationals following the additional funding announced in this Budget. These activities will no doubt highlight the real cost of uncertainty in the hybrid mismatch rules.