International tax changes

Hybrid mismatch rules

“The hybrid mismatch rules aim to prevent multinational companies from gaining an unfair competitive advantage by avoiding income tax or obtaining double tax benefits through hybrid mismatch arrangements. These arrangements exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions. Hybrid mismatch arrangements have an overall negative impact on competition, efficiency, transparency and fairness.”

Source, and for detailed information on what and to whom the rules apply, see this link- https://www.ato.gov.au/

Thin capitalisation

There have also been changes to the thin capitalisation provisions. These rules prevent certain debt deductions (eg for interest expenses). The changes are designed to prevent double gearing structures. Double gearing structures use layers of ‘flow-through’ entities (such as trusts and partnerships) to issue debt against the same underlying asset.

“The thin capitalisation rules affect both Australian and foreign entities that have multinational investments. This means they apply to:

  • Australian entities with specified overseas investments – these entities are called outward investing entities
  • foreign entities with certain investments in Australia, regardless of whether they hold the investments directly or through Australian entities – these entities are called inward investing entities.

There are two threshold tests that ensure entities with relatively small debt deductions or small overseas investments are not subject to the thin capitalisation rules. There is also a third test for certain entities established to manage certain risks.” source – ATO

Tip! These changes are complex. If they apply to your business, you should seek advice from your tax adviser.

For further information on the rules, see this link – https://www.ato.gov.au/

 

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