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ATO Publishes Law Companion Ruling on OECD Hybrid Mismatch Rules - Targeted Integrity Rule — Orbitax Tax News & Alerts

The Australian Taxation Office has published Law Companion Ruling (LCR) 2021/1 on OECD hybrid mismatch rules - targeted integrity rule. LCR 2021/1 is effective 1 January 2019.

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What this Ruling is about

This Ruling provides the Commissioner's view of particular aspects of the law in relation to the hybrid mismatch targeted integrity rule in Subdivision 832-J of the Income Tax Assessment Act 1997, legislated as part of the package of measures making up Australia's hybrid mismatch rules.

This Ruling also covers the amendments to the targeted integrity rule (and other provisions impacted by the rule's hypothetical operation), contained in Parts 1 and 3 of Schedule 1 to the Treasury Laws Amendment (2020 Measures No. 2) Act 2020 (the Act).

Broadly the amendments:

  • clarify that the entity that is entitled to a deduction in respect of the payment (disregarding the operation of the targeted integrity rule) does not have to be the entity that is making the payment (refer to paragraphs 30 to 35 of this Ruling)
  • specify that a deduction (the later year deduction) will not be permitted where a deduction has been disallowed in an earlier income year (under section 832-180 or section 832-530) if, under certain assumptions, the targeted integrity rule would have denied a deduction in respect of a payment (upon which the entitlement to the later year deduction has its basis) in that earlier income year (refer to paragraphs 36 to 43 of this Ruling)
  • specify that the targeted integrity rule can apply in the same income year in which there is a deducting hybrid mismatch (to the extent that the deduction component of that mismatch has not been 'neutralised' by the deducting hybrid mismatch rule) (refer to paragraphs 44 to 46 of this Ruling), and
  • clarify that state and municipal taxes can be taken into account in working out the rate of foreign income tax that applied to the payment (refer to paragraphs 51 to 58 of this Ruling).

Date of effect

This Ruling is effective from 1 January 2019.