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Australian Parliament passes hybrid mismatch legislation

On 16 August 2018, Australia’s Treasury Laws Amendment (Tax Integrity and Other Measures No. 2) Bill 2018 including the Australian hybrid mismatch integrity measures was passed by the Parliament.1 It is now awaiting Royal Assent.

The Bill includes the following hybrid measures:

  • OECD2 hybrid mismatch rules – Measures to prevent entities that are liable to income tax in Australia from being able to avoid income taxation, or obtain a double non-taxation benefit, by exploiting differences between the tax treatment of entities and instruments across different countries.

The OECD hybrid mismatch rules will apply to income years starting on or after 1 January 2019.

However, the imported mismatch rule (other than where an importing payment is made under a structured arrangement) will apply to income years starting on or after 1 January 2020.

The Bill also includes the following integrity measures:

  • OECD hybrid mismatch rules: Branch mismatch arrangements – Implements part of the OECD hybrid mismatch rules by limiting the scope of the exemption for foreign branch income and preventing a deduction from arising for payments made by an Australian branch of a foreign bank to its head office in some circumstances. Amendments will apply to income years starting on or after 1 January 2019.
  • OECD hybrid mismatch rules: Other effects of foreign income tax deductions – Measures to apply from 1 January 2019 to:
    • Deny imputation benefits on franked distributions made by an Australian corporate tax entity if all or part of the distribution gives rise to a foreign income tax deduction
    • Prevent certain foreign equity distributions received, directly or indirectly, by an Australian corporate tax entity from being nonassessable non-exempt income if all or part of the distribution gives rise to a foreign income tax deduction.


1. See EY Global Tax Alert, Australia introduces bill on hybrid mismatch tax rules into Parliament, dated 24 May 2018 and EY Global Tax Alert, Australia issues draft tax guidance on restructures of hybrid mismatch arrangements and the impact of tax avoidance rules, dated 21 June 2018.

2. Organisation for Economic Co-operation and Development.

EYG no. 010428-18Gbl

Download this Tax Alert as a PDF file.

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