Income Tax Assessment Act 1997



Division 832 - Hybrid mismatch rules  

Subdivision 832-J - Integrity rule  

SECTION 832-720   What this Subdivision is about  

This Subdivision contains an integrity measure that disallows an Australian deduction for a payment of interest (or a payment of a similar character) made by an entity (the paying entity ) under a scheme to a foreign entity (the interposed foreign entity ). The deduction will be disallowed if certain conditions are satisfied, including that:

  • (a) the paying entity, the interposed foreign entity and another foreign entity (the ultimate parent entity ) are in the same Division 832 control group; and
  • (b) the payment is not subject to Australian income tax; and
  • (c) the highest rate of foreign income tax (the foreign country rate ) on the payment is 10% or less; and
  • (d) it is reasonable to conclude (having regard to certain matters) that the entity, or one of the entities, that entered into or carried out all part of the scheme did so for a purpose including a purpose of enabling a deduction to be obtained in respect of the payment, and enabling foreign income tax to be imposed on the payment at a rate of 10% or less.
  • However, the deduction will not be disallowed if, assuming that the payment had been made directly to the ultimate parent entity:

  • (a) the rate of foreign income tax on the payment in the country of residence of the ultimate parent entity would be less than or equal to the foreign country rate; and
  • (b) the payment would not give rise to a hybrid mismatch of a particular kind.

    Operative provisions
    832-725 Payments made to interposed foreign entity (integrity measure) - denial of deduction
    832-730 Back to back arrangements, etc.
    832-735 Determination may specify kinds of scheme and circumstances where no denial of deduction

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