Question 29a Were you a partner in a foreign hybrid limited partnership (FHLP) or a shareholder in a foreign hybrid company (FHC)?
This question will help us to identify if there is a risk that income of a foreign hybrid limited partnership (FHLP) or a foreign hybrid company (FHC) has not been appropriately returned in Australia as an assessable distribution.
The dollar amounts or values asked for in this question are all based on your accounting records.
FHLP has the same meaning as set out in section 830-10 of the ITAA 1997.
FHC has the same meaning as set out in section 830-15 of the ITAA 1997.
If you were a partner in a FHLP or a shareholder in a FHC, answer Yes at A item 29a and complete the following:
- At B item 29a, write the number of FHLPs and FHCs in which you had an interest during the income year.
- At C item 29a, write the total amount of your share(s) of net income or profit.
ABC Co is an Australian resident taxpayer that is a partner in two foreign hybrid limited partnerships. It also holds shares in one foreign hybrid company.
Share of net income from the BBB partnership
Share of net income from the CCC partnership
Distribution of profit from the XYZ LLC
To complete this question ABC Co:
- writes 3 at B item 29a
- writes $1,025,000 at C item 29a.
Question 29b Apart from what you reported at item 29a, did you have any income or expense in connection with any cross-border hybrid entity?
The aim of this question is to identify whether you have any arrangements involving hybrid entities for tax purposes. A hybrid entity for tax purposes exists where one jurisdiction views the entity as transparent for tax purposes (such as a partnership, a trust or a disregarded entity, where the jurisdiction only taxes the owners of the partnership, trust or entity on its income) and another jurisdiction views it as opaque for tax purposes (such as a company where the jurisdiction taxes the company itself). A hybrid entity for tax purposes can also exist where both jurisdictions view the entity as transparent, and due to the tax treatment of the entity under consolidation rules (either in Australia or foreign jurisdiction) a tax mismatch arises.
This question collects information on gross revenue and expenditure affected by direct hybrid entity mismatches. This question therefore does not cover only net or neutralising amounts that would have been assessable or not deductible for direct hybrid entity mismatches if the hybrid mismatch legislation had applied in 2017–18.
To complete this question:
- use your current systems and make your best effort to determine the requested amounts
- include a reasonable estimate of gross revenue and expenditure mismatch figures for all your known hybrid entities
- keep a record of how you determined the figures you provide.
A mismatch in tax outcomes arises where a payment made by the hybrid entity is:
- deductible in one jurisdiction and non-assessable in the other jurisdiction, or
- deductable in two jurisdictions.
The dollar amounts or values asked for in this question are all based on your tax records.
Show the total amount of income derived by the hybrid entity separately from the total amount of expenses incurred by the hybrid entity, regardless of whether these two amounts net off to an overall hybrid income or expense outcome.
If you have any arrangements involving income or expenses affected by a hybrid entity tax mismatch, answer Yes at A item 29b.
If you answer Yes, you then specify the total amount of your income at B item 29b affected by hybrid tax mismatches, and the total amount of your expenses at C item 29b affected by hybrid tax mismatches.
ABC Co is an Australian resident company, which is wholly owned by XYZ Co, a resident of Country B. XYZ Co makes a ‘check-the-box’ election under Country B’s law to disregard ABC Co.
ABC Co pays a royalty of $1,000,000 to XYZ Co. As ABC Co is treated as a disregarded entity under Country B’s law, XYZ Co is not taxed on the royalty income in Country B.
ABC Co also derives $500,000 of operating income. This income will be subject to tax in both Australia and Country B.
To complete item 29b, ABC Co answers Yes at A, $500,000 at B and $1,000,000 at C.End of example
ABC Co is an Australian resident company, which is wholly owned by ABC Parent Co, which is also an Australian resident company. ABC Co owns TUV Co. TUV Co is a resident of Country B. ABC Co is included in the Australian consolidated group of ABC Parent Co under Australia's consolidation tax rules. Under the tax laws of Country B, ABC Co is also included in the consolidated group of TUV Co.
ABC Co pays interest of $2,000,000 to an unrelated party. As ABC Co is included in ABC Parent Co's consolidated group, ABC Parent Co can claim a deduction for ABC Co's $2,000,000 interest payment. As ABC Co is also included in the consolidated group of TUV Co in Country B, ABC Co can also deduct its $2,000,000 interest payment in Country B against the income of the Country B consolidated group including the income of TUV Co. The result is that the interest payment is deducted twice, once against the income of ABC Parent Co's consolidated group, and once against the income of ABC Co's consolidated group in Country B which includes the income of TUV Co
To complete item 29b, ABC Co answers Yes at A, and $2,000,000 at C.End of example
BBB Co is a resident of Country B and is a partner in Australian Limited Partnership (ALP). ALP is a corporate limited partnership for Australian tax purposes and is the provisional head company of an Australian multiple entry consolidated (MEC) group, of which ABC Co is a subsidiary member.
For Country B purposes ALP is treated as a transparent entity and BBB Co recognises its share of ALP’s income and expenses for Country B income tax purposes.
ALP pays interest of $2,000,000 to ABC Co. As ALP and ABC Co are consolidated, this payment is disregarded by virtue of the single entity rule. However, BBB Co recognises a share of ALP’s expense under Country B income tax laws. The result is that the interest payment gives rise to a deduction in Country B, and no amount of income is assessable in Australia.
To complete item 29b, ALP answers Yes at A, and $2,000,000 at C.End of example