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Australia: Update on hybrid mismatch rules

Australia: Update on hybrid mismatch rules

A report from KPMG provides information to facilitate taxpayer understanding and consideration of Australia’s hybrid mismatch rules.


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In 2015, the OECD released a final report on neutralising the effects of hybrid mismatch arrangements. The day following this release, the Australian Treasurer made a referral for the Board of Taxation to consider Australia’s response. This process resulted in the enactment of a comprehensive package of hybrid mismatch rules. This package was contained in 90 pages of new legislation, which contained 89 sections, and 30 new defined terms.

The new legislation applies to income years starting on or after 1 January 2019 (with some exceptions).

Hybrid mismatch rules—overview

Australia’s hybrid mismatch rules are complex and far-reaching. The rules target hybrid mismatch arrangements—broadly when there is a difference in international tax treatment of instruments or entities that leads to effective double deductions or deductions without income inclusion.

However, the rules also extend to certain quasi-hybrid mismatch arrangements involving Australian financing, including potentially Australian tax deductible interest payments on ordinary loans directly or indirectly from foreign related parties taxed at 10% or less.

These rules do not contain a de minimis threshold, or a grandfathering exclusion. They can apply when there is no tax avoidance motive, and can result in additional tax being payable over multiple years. There is also a retrospective element to applying the rules.

The scope of the rules means that examination of an entire global group is generally required to test their application, while ongoing monitoring for applicable group changes will also be needed.

Proper consideration of the rules would need to be a high priority agenda item.

The KPMG guide [PDF 1.4 MB] is intended those seeking to better understand the hybrid mismatch rules and identify some common arrangements that may be subject to these rules. It also provides examples of the tax return disclosures that are required as a consequence of the rules. 

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