26 October 2018 Australian Taxation Office issues guidance on GAAR and restructures of hybrid mismatch arrangements On 25 October 2018, the Australian Taxation Office (ATO) released its final Practical Compliance Guideline PCG 2018/7 (the PCG) dealing with the application of Part IVA (the general anti-avoidance rule) to restructures of hybrid mismatch arrangements. The PCG follows the earlier draft and resulting EY discussions and input. We had sought a general ATO messaging for taxpayers restructuring their hybrid mismatch arrangements to mitigate the risk of ATO attack under Part IVA: so EY concurs with the issuance of the PCG. The final PCG is similar to the earlier draft, with some changes and improvements responding to input. It confirms more clearly that taxpayers using hybrid mismatches are likely to restructure as anticipated by the law, and sets out various scenarios where taxpayers might expect that their restructure will have a low risk of attack under Part IVA. The PCG states that a hybrid restructure would prima facie generate a tax benefit but "the Commissioner would not seek to apply Part IVA where the restructure merely removes the double non-taxation outcome and the arrangement is itself an ordinary commercial dealing or structure without contrived features that would otherwise attract Part IVA." The ATO sets out five broad conditions for the low risk expectation including the commerciality of the restructure and its arm's-length features. The PCG states "low risk characterization is predicated on the replacement arrangement otherwise being an ordinary commercial dealing. This Guideline has no application to an arrangement that, regardless of the hybrid element, contains features that would otherwise have attracted the application of Part IVA."
The PCG does not cover all issues relevant to restructures of hybrid mismatches, for example thin capitalization outcomes. The PCG does however confirm the ATO is willing to deal directly with taxpayers about their restructures if they wish to have direct ATO interaction.
Document ID: 2018-2149 |
