Enacted in 2018, the hybrid mismatch rules aim to prevent multinational companies and privately owned groups 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 2 or more tax jurisdictions.
The hybrid mismatch rules apply to payments that result in hybrid mismatch outcomes such as where:
- a payment is deductible in one jurisdiction and non-assessable in the other jurisdiction
- one payment qualifies for a tax deduction in 2 jurisdictions
- a payment indirectly funds a hybrid mismatch in another jurisdiction
- the routing of investment or financing into Australia including via an entity located in a no- or low-tax (10% or less) jurisdiction.
These rules will neutralise hybrid mismatches by cancelling deductions or including amounts in assessable income.
Practical Compliance Guideline PCG 2018/7 Part IVA of the Income Tax Assessment Act 1936 and restructures of hybrid mismatch arrangements provides guidance on when restructures may attract our attention.
Law Companion Ruling LCR 2021/1 OECD hybrid mismatch rules – targeted integrity rule outlines the ATO’s interpretation of the targeted integrity rule resulting in the denial of interest deductions set out in Subdivision 832-J of ITAA 1997.
Find out more about how the hybrid mismatch rules work and when they apply, including links to other published guidance.