Australia Launches Consultation On Anti-Hybrid Rules
The Australian Board of Taxation has released for public comment a discussion paper on the implementation of the anti-hybrid rules developed by the Organisation for Economic Co-operation and Development (OECD).
As part of the 2015 Budget, on May 12, 2015, Australian Treasurer Joe Hockey wrote to Michael Andrew, Chair of the Board, asking for the body to undertake a consultation on the introduction of new rules to neutralize hybrid mismatch arrangements, in response to the OECD’s proposals under Action 2 of its base erosion and profit shifting (BEPS) project.
Hockey asked the Board to identify an implementation strategy that has regard to delivering on the objectives of eliminating double non-taxation, including long term tax deferral; the economic costs for Australia; the compliance costs for taxpayers; and interactions between Australia’s domestic legislation (e.g. the debt-equity rules and regulated capital requirements for banks) and Australia’s international obligations (including tax treaties).
The paper, which was released on November 20, 2015, invites stakeholders’ views on some of the specific recommendations contained in the OECD’s report on BEPS Action 2, including on the tax treatment of financial instruments; the disregarded hybrid payments rule; the reverse hybrid rule; the deductible hybrid payments rule; the dual resident payer rule; the imported mismatch rule; and the various recommended definitions for jurisdictions to adopt as part of their anti-hybrid rules.
The Board has also requested stakeholders to respond to questions including:
- What are the advantages and disadvantages (economic, commercial, revenue, or other) for Australia in implementing the anti-hybrid rules as recommended in the Action 2 Report;
- What are the key implementation costs, obstacles, and material compliance costs for taxpayers, the Australian Taxation Office, and the Government if the anti-hybrid rules as recommended in the Action 2 Report are implemented by Australia;
- Whether there are any aspects of the Action 2 Report that should not be implemented on the basis that Australia’s laws are sufficiently comprehensive; and
- How should the anti-hybrid rules interact operationally with other parts of the Australian tax law?
The discussion paper states: “Australia already has comprehensive rules to address a number of the BEPS measures. However, Australia’s domestic tax law does not generally take account of the tax treatment of a financial instrument, arrangement, or entity in another jurisdiction, which can give rise to hybrid mismatches. As such, unlike some of the other BEPS Action Items, Australian tax laws do not currently meet the OECD recommendations to address hybrid mismatches in Action Item 2.”
The closing date for submissions is January 15, 2016. The Board will report to the Government by March 2016 for the issue to be considered as part of the 2016 Budget.