Australian Taxation Office Provides Further Draft Guidance for Hybrid Mismatch Rules

November 27, 2019by TPA Global

The Australian Taxation Office (ATO) has published draft Taxation Determination TD2019/D12, titled as “Income tax: is section 951A of the US Internal Revenue Code a provision of a law of a foreign country that corresponds to section 456 or 457 of the Income Tax Assessment Act 1936 for the purpose of subsection 832-130(5) of the Income Tax Assessment Act 1997?” The draft provides guidance on the application of Australia’s hybrid mismatch rules in relation to the US ‘GILTI rule’.

It outlines why the ATO believes that section 951A of the US Internal Revenue Code (IRC) does not correspond to section 456 and 457 of Australia’s controlled foreign company regime for the purpose of applying Australia’s hybrid mismatch rules. The US IRC’s section 951A concerns the Global Intangible Low-Taxed Income rule, which is also known as the GILTI rule. This rule includes certain income of Controlled Foreign Companies (CFCs) in the US tax base.


The fact that the ATO does not consider the GILTI rule to correspond to sections 456 and 457 can lead to severe consequences for businesses, such as double taxation. For example, Australian taxpayers can be denied deductions for certain payments, whereas those payments are included in the tax base of a US taxpayer. Furthermore, when an Australian entity’s income is subject to US federal income tax under the GILTI rules, these amounts are not considered dual inclusion income. Nevertheless, they are included in the tax base of a US taxpayer.

The ATO advices Australian businesses to review their global structures to assess the impact of the hybrid mismatch rules generally, while US inbounds should have regard to the impact of the draft determination.

The draft determination is available for public comment until January 17, 2020.

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