Australia: Tax authorities review disclosures of international dealings for hybrid arrangements
Australia: Tax authorities review disclosures
The Australian Taxation Office (ATO) indicated it will contact taxpayers that have made positive disclosures in Question 49 of the “International Dealings Schedule” and will seek further information when appropriate.
A large number of Australian corporate taxpayers have made specific disclosures in relation to the application of the Australian hybrid rules in Section G of the International Dealings Schedule. The ATO raised concerns regarding disclosures in Question 49, noting that when a positive disclosure has been made, in many cases, subsequent descriptions do not contain the required level of information.
Question 49 was designed to mandate disclosure of each step of arrangements that have effectively restructured or replaced arrangements that would have been subject to the Australian hybrid rules if they had not been unwound, restructured or replaced. The instructions to the schedule require:
- A description of each of the steps of the restructured or replacement arrangement, including connected steps of members of the reporting entity’s global group
- A description of the replaced hybrid mismatch arrangement including the nature of the hybrid mismatch and how the tax laws of the relevant counterparty jurisdiction operated to produce the mismatch
The ATO provided examples when the required disclosures are not satisfied such as instances when taxpayers failed to provide:
- The name of the overseas related entity that is a party to the replacement transactions
- The country of tax residence of the overseas party
- A description of each step of the replacement arrangement including connected transactions in the reporting entity’s global group
- A description of the nature of the hybrid mismatch of the unwound or replaced arrangement and how the tax laws of the relevant counterparty jurisdiction operated to produce the mismatch
The ATO indicated that it will be following up with taxpayers that have made positive disclosures in Question 49, but did not meet the level of disclosure required in the instructions.
The ATO focus on Question 49 disclosures again highlights that the tax authority will continue to focus on Section G disclosures and application of the Australian hybrid rules to taxpayers more broadly. In light of information provided as a result of the Section G disclosures, and recent ATO statements foreshadowing a resumption of compliance activity in the back half of 2020, tax professionals anticipate specific enquiries on this issue may become commonplace.
Adequate contemporaneous documentation will be useful to serve the dual purpose of supporting the positions taken in the tax return, as well as demonstrating “reasonable enquiries” have been made to obtain the information required in line with the ATO’s expectations.
For more information, contact a KPMG tax professional in Australia:
Fabian Fedele | firstname.lastname@example.org
Tammy Eccles | email@example.com
Karen Lam | firstname.lastname@example.org
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