Income Tax Assessment Act 1997

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.