Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 832 - Hybrid mismatch rules  

Subdivision 832-D - Hybrid payer mismatch  

Operative provisions

SECTION 832-325   Meaning of liable entity  

Entity is a taxpayer in respect of its own income or profits

832-325(1)    

An entity is a liable entity , in a country, in respect of its income or profits if:

(a) for Australia:

(i) *tax is imposed on the entity in respect of all or part of its income or profits for an income year; or

(ii) the entity is a *public trading trust (including a trust that makes a choice under section 703-50 (Choice to consolidate a consolidatable group)); or

(iii) the entity is an entity to which Division 295 (about superannuation entities) applies; and

(b) for a foreign country - *foreign income tax (except a tax covered by subsection 832-130(7) ) is imposed under the law of the foreign country:

(i) on the entity in respect of all or part of its income or profits for a *foreign tax period; or

(ii) on the income or profits of the entity in a way that corresponds to the way that foreign income tax is imposed under the law of that country on the income or profits of a company (regardless whether the foreign income tax is actually imposed on that entity, or another entity).

Note 1:

The entity, and its income or profits, are generally identified disregarding tax provisions: see section 832-30 .

Note 2:

An example is an entity that is a company (and is not a subsidiary member of a consolidated group or MEC group). In Australia, a company is the liable entity in respect of its income or profits.

Entity is a taxpayer in respect of another entity ' s income or profits

832-325(2)    
An entity is a liable entity , in a country, in respect of the income or profits of another entity (the test entity ) if:

(a) for Australia - *tax is imposed on the entity in respect of all or part of the income or profits of the test entity for an income year; and

(b) for a foreign country - *foreign income tax (except a tax covered by subsection 832-130(7) ) is imposed under the law of the foreign country on the entity in respect of all or part of the income or profits of the test entity for a *foreign tax period.

Note 1:

The test entity, and its income or profits, are generally identified disregarding tax provisions: see section 832-30 .

Note 2:

An example is a test entity that is a partnership. In Australia, each partner in the partnership is a liable entity in respect of the income or profits of the partnership.

832-325(2A)    

However, an entity is not a liable entity in a country in respect of the income or profits of a test entity under subsection (2) if the test entity is the liable entity in that country in respect of the income or profits as a result of the operation of subparagraph (1)(a)(ii), (a)(iii) or (b)(ii).

832-325(3)    
To avoid doubt, the following outcomes may arise under subsection (2) in a country:

(a) there may be one or more *liable entities in respect of the income or profits of a test entity;

(b) there may be one or more interposed entities between the test entity and an entity that is a liable entity in respect of the income or profits of the test entity.

Entity not required to be actually liable to pay tax or foreign income tax

832-325(4)    
To avoid doubt, an entity may be a *liable entity in respect of its own, or another entity ' s, income or profits in a country even if any of the following situations exist:

(a) there are no actual income or profits;

(b) there are income or profits, but no part of the income or profits is:

(i) for Australia - *subject to Australian income tax; or

(ii) for a foreign country - *subject to foreign income tax in that foreign country;

(c) the entity is not actually liable to pay an amount of *tax or *foreign income tax.

Note:

In determining whether an entity is a liable entity in such a situation, assume that income or profits within the tax base of the country exist.

Effect of CFC regimes

832-325(5)    
An entity is not a liable entity in respect of income or profits of another entity (the test entity ) merely because all or part of the income or profits of the test entity are:

(a) included under section 456 or 457 of the Income Tax Assessment Act 1936 in the assessable income of the other entity; or

(b) included under a corresponding provision of a law of a foreign country in working out the tax base of the other entity (including a tax base of nil, or a negative amount).