Alia Lum and Peter Madden discuss the recently introduced hybrid mismatch and interposed entity bill.
On 24 May 2018, the Government introduced the Tax Laws Amendment (Tax Integrity and Other Measures No.2) Bill 2018 and accompanying Explanatory Memorandum (EM) which addresses hybrid mismatch arrangements and interposed entity financing transactions through low or no tax jurisdictions. This follows on from the earlier Exposure Drafts issued on 24 November 2017 and 7 March 2018.
Although the Bill is substantively the same as the March 2018 draft, it does include a number of refinements to clarify the operation of the rules and interaction with other parts of the tax law. In addition:
This measure can apply to deny a deduction for interest or derivative payments on financing arrangements made via an interposed related entity in a jurisdiction with a corporate tax rate of 10% rate or less or with a territorial regime system of tax (such as Hong Kong or Singapore). There are a number of changes from the previous Exposure Draft:
Now that the hybrid rules and financing integrity rule are close to becoming law and a firm start date has been set, multinational groups need to move quickly on restructuring or refinancing before the end of the year. Further, despite the welcome delay for the imported mismatch rules, groups should be mindful that unconnected hybrid arrangements anywhere in the global group could have significant adverse consequences in Australia unless unwound in the next 18 months or so.