On 21 November 2019, the Australian Taxation Office (ATO) issued draft guidance in the form of Taxation Determination TD 2019/D12 (Draft TD) on the application of Australia’s hybrid mismatch rules in relation to the United States (US) “GILTI” rules which, in essence, include certain income of controlled foreign companies (CFCs) in the US tax base.
In short, the Commissioner of Taxation (Commissioner) considers that US taxation of payments as a result of the application of the GILTI regime does not mean that amount is subject to foreign tax (STFT) because the GILTI regime does not “correspond” to Australia’s CFC rules.
This means that under the hybrid mismatch rules, Australian taxpayers could be denied deductions for certain payments, notwithstanding those payments are included in the tax base of a US taxpayer. In addition, where an Australian entity’s income is subject to US federal income tax under the GILTI rules, these amounts would not be considered “dual inclusion income” (DII), notwithstanding those amounts are included in the tax base of a US taxpayer. This is an important issue for many US headquartered multinational groups as the Commissioner’s interpretation ultimately can result in the double taxation of certain profits.