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Government moves to plug tax exploit loophole


The government has released exposure draft legislation aimed at eliminating double non-taxation benefits from hybrid mismatch arrangements, in line with recommendations from the Organisation for Economic Co-operation and Development (OECD).

By Jotham Lian 11 minute read

In the 2016-17 and 2017-18 budgets, the government announced that it would implement the recommendations made in the OECD Action 2 Report, taking into account the recommendations made by the Board of Taxation.

The exposure draft legislation seeks to implement the recommendations of the OECD aimed at eliminating double non-taxation benefits from hybrid mismatch arrangements which exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.

According to Treasury, “hybrid mismatch arrangements arise where entities exploit differences in the taxation treatment of an entity or instrument under the laws of at least two tax jurisdictions to defer or reduce income tax. This can result in double non-taxation, including long-term tax deferral.”


The proposed legislation will prevent any double non-taxation benefits by either denying deductions or including amounts in assessable income.

The government will also implement recommendations from the OECD’s July 2017 report, Neutralising the Effects of Branch Mismatch Arrangements, which recommends that countries address double non-taxation outcomes which arise because of differences in the taxation treatment of dealings within the same legal entity to bring the treatment of these arrangements in line with hybrid mismatch arrangements.

Further, the draft legislation includes a targeted integrity rule to ensure arrangements, such as using investment structures, cannot be used to circumvent the hybrid mismatch rules.

“The government will consult with stakeholders as it develops the targeted integrity rule and branch mismatch rules including through the release of separate exposure draft legislation,” said treasurer Scott Morrison in a release.

“These additional rules will commence at the same time as the general hybrid mismatch rules, that is, six months after Royal Assent of the bill introducing the hybrid mismatch rules.”

The government is accepting submissions to the draft legislation until 22 December 2017.

Jotham Lian

Jotham Lian


Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.

Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.

You can email Jotham at: This email address is being protected from spambots. You need JavaScript enabled to view it. 

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