Note that, consistent with the Budget 2017 Cabinet paper (CAB-17-MIN-0164 refers), the hybrid rules should generally apply from 1 July 2018. Noted Agree that the effective date of rule relating to unstructured imported mismatches which should be delayed until 1 January 2020. Agreed/Not agreed Agreed/Not agreed Agree that the effective date of the rules relating to limited partnerships and foreign trusts which are reverse hybrid entities (subject to the decision at Recommendation 5.2 (k) on foreign trusts above) should be income years beginning on or after 1 April 2019 Agreed/Not agreed Agreed/Not agreed Agree that there will be no general grandparenting of hybrid instruments or entities from the application of the hybrid mismatch rules, with the exception of hybrid financial instruments which are entitled to grandparented tax treatment until their next call date provided that they are: issued directly to, or are traceable to, issues to the public; and issued before the release of the Government’s Addressing Hybrid Mismatch Arrangements discussion document on 6 September 2016. Agreed/Not agreed Agreed/Not agreed Note that the fiscal impact of agreeing to recommendation (y) is an estimated revenue increase of approximately $71 million over the four years from 2018/19 to 2021/22. Noted Noted Note that the fiscal impact set out in recommendation (z) is contingent on Noted
attributable to a branch in another country, but the branch country does not treat the payee as having a branch which would give the branch country a right to tax. We are not of such structures being used in New Zealand. However, UK and OECD officials advised us that structures making use of these types of branch mismatches were widely used in Europe, and that the effectiveness of a country’s hybrid measures would be significantly compromised if they were not addressed. Applying the recommendation 4 counteraction to these branch mismatches was accepted in consultation. Instruments denominated in a foreign currency As for recommendation 1 we recommend that when the payment is on a loan denominated in a foreign currency, the amount of the recommendation 4 denial includes the effect of foreign currency gain or loss. CFC inclusion As for recommendations 1 and 3 primary rule, we recommend that to the extent that a payment to a reverse hybrid can be proven to give rise to taxation under the owner country’s CFC regime, or the CFC regime of a higher tier owner, a deduction should be allowed. Interaction with non-resident withholding tax As noted in relation to recommendation 1, denial of a deduction under recommendation 4 is permanent, and accordingly the imposition of non-resident withholding tax on the payment will involve a degree of over-taxation. However, because the mismatch does not necessarily arise in relation to hybrid financial instrument (indeed, it may arise on a royalty payment, which is not in relation to a financial instrument at all), there is no basis for recharacterising the payment as a dividend for withholding tax purposes. Accordingly, we do not recommend any adjustment to the imposition of NRWT. This is the approach taken by other jurisdictions. In general the outcome can be avoided by not using reverse hybrid entities. Interaction with thin capitalisation regime To the extent that a deduction is denied for a payment of interest under recommendation 4, we recommend that the debt corresponding to that deduction, and the payment itself, be treated in the same way as if the deduction were denied under recommendation 1, i.e. it will not be treated as debt for purposes of the rules. . Reverse hybrids – recommendation 5 OECD recommendation 5 is in three parts.