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International tax and hybrid mismatches in life sciences: New rules

Hybrid mismatches in life sciences: New rules

Watch a short snapshot video from Peter Madden, where he explains the new hybrid mismatch rules, as well as his full presentation in the recording of our Life Sciences Tax Update webinar held on 28 August 2019.

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This past year has been an eventful year in international tax, with a number of key rules and concepts being finalised by the ATO.

2019 has brought with it the commencement of the new hybrid mismatch rules, with the exception of the imported mismatch rule applying to income years starting on or after 1 January 2020. These rules are designed to capture exploitation of differences in entity tax treatment between different tax jurisdictions. The ATO has provided guidance to these rules in numerous PCGs and TRs, most notably PCG 2019/6, which deals with the concept of structured arrangements.

The 2019 International Dealings Schedule (IDS) changes and instructions have also recently been released. Within Section G of the IDS, relevant taxpayers must disclose quantitative and qualitative information about their hybrid arrangements and whether these arrangements were restructured or replaced by a substitute arrangement, for income years commencing on or after 1 January 2019.

In 2018 following the decision of the Bywater case, the ATO published a new Taxation Ruling (TR 2018/5) containing its revised interpretation of the concept of central management and control (“CM&C”). In TR 2018/5, the ATO states its position that a company that has its CM&C in Australia will be considered to carry on a business in Australia, regardless of the fact that it may not carry on an active operating business or trade in Australia.  

Key actions to undertake

  • Consider the impact to which the new IDS disclosures would have on taxpayers lodging income tax returns for income years ending between December 2018 and November 2019 (years during which the hybrid mismatch rules are not yet applicable).
  • Review potential exposures to the new hybrid mismatch rules, particularly the structured arrangement rules which are scheduled to commence on 1 January 2020.
  • Consider the tax residency of any offshore entities where Board of Director’s meetings are held within Australia.

Presentation slides

View a copy of the slide presentation from the webinar.

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