Australian proposals will affect financing arrangements previously outside its hybrid mismatch rules.
Under the first of two new proposals, Australia will deny taxpayers certain deductions for financing arrangements that fall outside of the hybrid mismatch rules, but achieve similar outcomes. This proposal follows Australia's announcement last November to develop new "integrity rules", and will affect transactions that involve Australian entities that have related lenders (or counterparties) resident in jurisdictions with a corporate tax rate of 10 percent or less (such as the Cayman Islands), or with a territorial regime system of tax (such as Hong Kong or Singapore). There is no grandfathering for existing structures, but multiple exceptions have been proposed.
Under the second proposal, some foreign branches of corporations with an Australian presence will no longer be eligible for the "Australian foreign branch exemption". This measure is intended to deny the exemption from being applied to branch income that is not subject to tax in a foreign jurisdiction. The proposal will also deny deductions for deemed intra-branch payments from an Australian branch of a foreign bank where there is no corresponding income pick up in the other jurisdiction.
When Australia released its initial draft legislation to counteract "hybrid mismatches" on November 24, 2017, it said it would also develop new "integrity rules" to deal with multinational groups that structure out of the hybrid mismatch rules to achieve double non-taxation outcomes. Australia also said it would adopt the OECD's previously announced recommendations for branch mismatch arrangements.
Both of these proposed rules are now included in the revised draft legislation and are intended to commence at the same time as Australia's other hybrid mismatch rules. Under these hybrid mismatch rules, certain entities that have undertaken transactions resulting in a mismatch will be denied a deduction on otherwise deductible payments, or will be taxed on receipts that are usually non-taxable.
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Information is current to April 10, 2018. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500