The Australian hybrid mismatch rules were released in draft form in late 2017, legislated in August 2018 and took effect for tax periods commencing on or after January 1, 2019. However, the Australian Treasury, on December 13, 2019, released Exposure Draft legislation which proposes to ‘tweak’ the enacted Australian hybrid mismatch rules.
Public consultation on these proposed amendments closed on January 24, 2020. PwC Australia made a submission related to this draft legislation, also identifying other elements of the existing law that are generating uncertainties for a range of taxpayers.
The hybrid mismatch rules may affect taxpayers with a December 31 year-end; they should account for any adverse impacts that these rules may have on their financial statements. This Insight includes some of the highlights and recent developments related to these rules.
Taxpayers with related-party cross-border deductible payments (or hybrid entities, including Australian entities that may be ‘disregarded’ for foreign tax purposes) should review the potential impact of the hybrid mismatch rules, including the imported mismatch and low tax lender rules. Taxpayers with cross-border transactions may be caught off guard as the hybrid mismatch rules do not have a tax avoidance purpose test, a de minimis carve-out, or transitional provisions. The rules will be important for the purposes of year-end tax provisioning for accounting purposes, as well responding to extensive questions on the annual Australian income tax return.