a loss gives rise to:

(i) a deduction for an entity (the payer) for an income year; or

(ii) a *foreign income tax deduction for an entity (also the payer) for a *foreign tax period; and

in working out the amount of the loss:

all or a part of a payment made, or to be made, to one or more other entities is taken into account; or

2 or more payments made, or to be made, to one or more other entities are taken into account.

at the end of the income year or *foreign tax period identified in paragraph (1)(a), the payer made a payment to the recipient; and

the amount of the payment was equal to the amount of the deduction or *foreign income tax deduction; and

the payment gave rise to the deduction or foreign income tax deduction.

at the end of the income year or *foreign tax period identified in paragraph (1)(a), the payer made a payment to each recipient; and

the amount of each payment was equal to so much of the amount of the deduction or *foreign income tax deduction as is reasonable having regard to the amounts of the payments actually made to the recipients; and

the payment gave rise to a deduction or foreign income tax deduction equal to the amount of the payment.

the entity that made the payment were the entity identified in the payment provision as the payer; and

the recipient of the payment were the entity identified in the payment provision as the recipient.

subsection 701-1(1) (the single entity rule); and

(b) Income Tax Assessment Act 1936; andPart IIIB of the

any law of a foreign country that, for the purposes of a foreign tax, treats a different entity as having made the payment, or disregards the payment.

subsection 701-1(1) (the single entity rule); and

(b) Income Tax Assessment Act 1936; andPart IIIB of the

any law of a foreign country that, for the purposes of a foreign tax, treats those income or profits as income or profits of a different entity.

an amount of a deduction for an outgoing is disallowed under this Division; and

the outgoing was incurred in connection with acquiring an item of *trading stock; and

the item is on hand at the end of an income year;

a deduction (other than a deduction that is solely attributable to a *currency exchange rate effect) is allowable to an entity in an income year in respect of a payment (including a part or share of the payment); and

the amount of the deduction exceeds the sum of the amounts of the payment that are:

*subject to foreign income tax in a foreign country in a *foreign tax period that starts no later than 12 months after the end of the income year; or

*subject to Australian income tax for the income year;

an entity is entitled to a *foreign income tax deduction in a foreign country in a *foreign tax period in respect of a payment (including a part or share of the payment); and

the amount of the foreign income tax deduction exceeds the sum of the amounts of the payment that are:

*subject to foreign income tax in a foreign country in a foreign tax period that starts no later than 12 months after the end of the foreign tax period in which the foreign income tax deduction arose; or

*subject to Australian income tax for an income year that starts no later than 12 months after the end of the foreign tax period in which the foreign income tax deduction arose; and

the foreign income tax deduction is not solely attributable to:

any currency exchange rate fluctuations; or

a difference between an expressly or implicitly agreed currency exchange rate for a future date or time and the applicable currency exchange rate at that date or time;

gives rise to a *foreign income tax deduction in a foreign country in a *foreign tax period; and

also gives rise to:

a deduction in an income year; or

a foreign income tax deduction in a foreign country (other than the country mentioned in paragraph (a)).

the *foreign income tax deduction mentioned in paragraph (1)(a);

the deduction mentioned in subparagraph (1)(b)(i), or the foreign income tax deduction mentioned in subparagraph (1)(b)(ii), as the case requires.

the amount of the *foreign income tax deduction mentioned in paragraph (1)(a); and

the sum of the amounts of the deduction, or foreign income tax deduction, mentioned in subparagraph (1)(b)(i) or (ii).

an amount representing the decline in value of an asset;

an amount representing a share in the net loss of a partnership or other transparent entity.

an amount representing a share in the net loss of a partnership gives rise to a deduction; and

in a foreign country:

the same share in the income or profits of the partnership forms part of the tax base of an entity under a law of the foreign country dealing with *foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax); but

that share is brought to account in that tax base on an item-by-item basis, instead of on a net basis;

if paragraph (4)(a) applies—the scheme under which the asset is held; or

if paragraph (4)(b) applies—the scheme under which the net loss arose.

any provisions of *foreign hybrid mismatch rules of a foreign country;

any provisions of another law of a foreign country relating to *foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax) that has substantially the same effect as foreign hybrid mismatch rules.

the entity is a trust or partnership; and

the trust or partnership has net income for the income year;

included in the assessable income of another entity for the income year (other than an entity that is a partnership or the trustee of a trust); or

for a trust—on which the trustee is liable to be assessed and to pay *tax.

(a) an amount (the pre-credit amount) of income or profits would, apart from this subsection, be *subject to foreign income tax in a foreign country; and

an entity is entitled under the law of the foreign country to a credit, rebate or other tax concession in respect of the amount for foreign tax (other than a withholding-type tax) payable under a tax law of a different country (including Australia);

(a) an amount (the pre-deduction amount) of income or profits would, apart from this subsection, be *subject to foreign income tax in a foreign country; and

the amount consists of a dividend received by an entity from a company; and

the entity is entitled to a *foreign income tax deduction in respect of all or part of the amount of the dividend;

any provisions of *foreign hybrid mismatch rules of a foreign country;

any provisions of another law of a foreign country relating to *foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax) that has substantially the same effect as foreign hybrid mismatch rules.

a payment has any of the following effects:

it gives rise to a deduction;

it gives rise to a *foreign income tax deduction;

it is *subject to Australian income tax;

it is *subject to foreign income tax; and

for the purposes of this Division, the amount of one or more such effects is to be translated under Subdivision 960-C into an entity’s *applicable functional currency, or into Australian currency;

apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and

the deduction is the *deduction component of a *hybrid financial instrument mismatch to which the payment gives rise.

the entity is the recipient of a payment that gives rise to a *hybrid financial instrument mismatch; and

the *deduction component of the mismatch is a *foreign income tax deduction; and

the secondary response is required (see subsection (2)).

if the *foreign tax period in which the *foreign income tax deduction arises falls wholly within an income year of the entity—that income year; or

if the foreign tax period in which the foreign income tax deduction arises straddles 2 income years of the entity—the earlier of those income years.

the payment is made under a *structured arrangement to which the entity is not a *party; and

subsection 832-200(3) does not apply.

the *deduction component of the mismatch is a *foreign income tax deduction; and

no amount becomes *subject to Australian income tax as a result of the application of section 832-185 in relation to the mismatch; and

none of the following countries has *foreign hybrid mismatch rules, or another law that has substantially the same effect as foreign hybrid mismatch rules:

the country in which the foreign income tax deduction arose;

any country in which income or profits of the recipient of the payment are *subject to foreign income tax.

the payment gives rise to a *hybrid mismatch under section 832-215 or 832-230; and

subsection (3) or (6) applies.

the entity that made the payment;

each entity that is a *liable entity in respect of the income or profits of the recipient of the payment.

the entities are in the same *Division 832 control group;

one of the entities holds a *total participation interest of 25% or more in the other entity;

a third entity holds a total participation interest of 25% or more in each of the entities.

each of the entities is a member of a group of entities that are consolidated for accounting purposes as a single group;

one of the entities holds a *total participation interest of 50% or more in each of the other entities;

a third entity holds a total participation interest of 50% or more in each of the entities.

the hybrid mismatch is priced into the terms of a *scheme under which the payment is made; or

it is reasonable to conclude that the hybrid mismatch is a design feature of a scheme under which the payment is made.

the entity could not reasonably have been expected to be aware that the scheme gave rise to a *hybrid mismatch; and

no other entity in the same *Division 832 control group as the entity could reasonably have been expected to be aware that the scheme gave rise to a hybrid mismatch; and

the financial position of each entity in the Division 832 control group would reasonably be expected to have been the same if the scheme had not given rise to the hybrid mismatch.

the payment is made under any of the following:

a *debt interest;

an *equity interest;

a *derivative financial arrangement;

an *arrangement covered by subsection (2); and

the payment might reasonably be expected to give rise to a *deduction/non-inclusion mismatch; and

the mismatch that might reasonably be expected to arise, or a part of that mismatch, meets a hybrid requirement in section 832-220 or 832-225.

the arrangement is any of the following:

a reciprocal purchase agreement (otherwise known as a repurchase agreement);

a securities lending arrangement;

a similar arrangement; and

an entity acquires any of the following under the arrangement:

a *debt interest;

an *equity interest;

a *derivative financial arrangement.

the amount of the *deduction/non-inclusion mismatch, unless paragraph (b) applies; or

if only a part of the deduction/non-inclusion mismatch meets a hybrid requirement mentioned in paragraph (1)(c)—the amount of that part of the deduction/non-inclusion mismatch.

the payment that gives rise to the mismatch is made under any of the following:

a *debt interest;

an *equity interest;

a *derivative financial arrangement; and

the mismatch, or the part of the mismatch, is attributable to differences in the treatment of the debt interest, equity interest or derivative financial arrangement, arising from the terms of the interest or arrangement; and

the exception in subsection (2) does not apply.

the difference in treatment mentioned in paragraph (1)(b) primarily relates to a deferral in the recognition of income or profits under the *debt interest, the *equity interest or the *derivative financial arrangement; and

the term of the interest or arrangement is 3 years or less.

the payment that gives rise to the mismatch is made under an *arrangement covered by subsection 832-215(2); and

the mismatch, or the part of the mismatch, is attributable to differences in the treatment of the arrangement; and

the exception in subsection (2) of this section does not apply.

the difference in treatment mentioned in paragraph (1)(b) primarily relates to a deferral in the recognition of income or profits under the *arrangement; and

the term of the arrangement is 3 years or less.

the payment gives rise to a *deduction/non-inclusion mismatch; and

the payment is made under an *arrangement under which any of the following is transferred:

a *debt interest;

an *equity interest;

a *derivative financial arrangement; and

(c) the payment, or a part of the payment, (the substitute payment) could reasonably be regarded as having been converted into a form that is in substitution for a *return (however described) on the interest or arrangement; and

the return is covered by subsection (2).

the return is made to the payer of the substitute payment, and is not *subject to foreign income tax or *subject to Australian income tax;

the return is not made to the payer of the substitute payment, but if it had been it would not have been subject to foreign income tax or subject to Australian income tax;

if the return were instead made to the payee of the substitute payment:

it would be subject to foreign income tax or subject to Australian income tax; or

it would give rise to a *hybrid mismatch under section 832-215.

apart from this section, the amount would be *subject to foreign income tax; and

(b) the rate of *foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax) (the lower rate) on the amount under the law of the relevant foreign country is lower than the rate (the ordinary rate) that would ordinarily be imposed on interest income derived by an entity of that kind in the foreign country.

an amount was not allowable as a deduction for the entity in an earlier income year under section 832-180 in respect of a payment that gave rise to a *hybrid financial instrument mismatch; and

(b) an amount (the taxed amount) of the payment is:

*subject to foreign income tax in a foreign country in a *foreign tax period that ends within 12 months after the end of the adjustment year; or

*subject to Australian income tax in the adjustment year.

apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and

the deduction is the *deduction component of a *hybrid payer mismatch to which the payment gives rise.

the entity is the recipient of a payment that gives rise to a *hybrid payer mismatch; and

the *deduction component of the mismatch is a *foreign income tax deduction; and

the secondary response is required (see subsection (2)).

if the *foreign tax period in which the *foreign income tax deduction arises falls wholly within an income year of the entity—that income year; or

if the foreign tax period in which the foreign income tax deduction arises straddles 2 income years of the entity—the earlier of those income years.

the payment is made under a *structured arrangement to which the entity is not a *party; and

subsection 832-305(3) does not apply.

the *deduction component of the mismatch is a *foreign income tax deduction; and

no amount becomes *subject to Australian income tax as a result of the application of section 832-290 in relation to the mismatch; and

none of the following countries has *foreign hybrid mismatch rules, or another law that has substantially the same effect as foreign hybrid mismatch rules:

the country in which the *foreign income tax deduction arose;

any country in which income or profits of the recipient of the payment are *subject to foreign income tax.

the payment gives rise to a *hybrid mismatch under section 832-310; and

subsection (3) or (4) applies.

the *hybrid payer;

each entity that is a *liable entity in respect of the income or profits of the hybrid payer.

the payment gives rise to a *deduction/non-inclusion mismatch; and

the payment meets the hybrid requirement in section 832-315.

the amount of the *deduction/non-inclusion mismatch; and

if there is an excess under either subparagraph 832-315(2)(b)(i) or 832-315(3)(b)(i)—the amount of the excess.

the payment is made by a *hybrid payer; and

subsection (2) or (3) applies.

the non-including country identified in subsection 832-320(3) is Australia; and

either:

the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to Australian income tax for an income year was instead worked out on the assumption in subsection (4); or

on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch.

the non-including country identified in subsection 832-320(3) is a foreign country; and

either:

the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to foreign income tax for a *foreign tax period was instead worked out on the assumption in subsection (4); or

on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch.

to the same recipient; but

by an entity that was a *liable entity in the non-including country identified in subsection 832-320(3) only in respect of its own income or profits.

subsection (2) applies to the entity in relation to a country and the payment; and

subsection (3) applies to the entity in relation to a different country and the payment.

the test entity, or another entity, is a *liable entity in the deducting country in respect of income or profits of the test entity (or a part of those income or profits); and

(b) that liable entity is not also a liable entity in the deducting country in respect of income or profits of the recipient of the payment.

the test entity, or another entity, is a *liable entity in the non-including country in respect of income or profits of the test entity (or a part of the income or profits); and

that liable entity is also a liable entity in the non-including country in respect of income or profits of the recipient of the payment.

for Australia—*tax is imposed on the entity in respect of all or part of its income or profits for an income year; and

for a foreign country—*foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax) is imposed under the law of the foreign country on the entity in respect of all or part of its income or profits for a *foreign tax period.

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

for a foreign country—*foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax) 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.

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

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.

there are no actual income or profits;

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

for Australia—*subject to Australian income tax; or

for a foreign country—*subject to foreign income tax in that foreign country;

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

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

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).

the *hybrid payer is eligible to apply the amount (see subsection 832-680(7)); and

the amount is *subject to Australian income tax for the purposes of subsection 832-680(1) in the income year mentioned in subsection 832-285(1); and

the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the non-including country identified in subsection 832-320(3).

the *hybrid payer is eligible to apply the amount (see subsection 832-680(7)); and

the amount is *subject to Australian income tax for the purposes of subsection 832-680(1) in the inclusion year mentioned in subsection 832-290(4); and

the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the deducting country mentioned in subsection 832-320(2).

the *hybrid payer is eligible to apply the amount (see subsection 832-680(7)); and

in the same *foreign tax period as the period in which the *foreign income tax deduction arose, the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the deducting country mentioned in subsection 832-320(2); and

the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the non-including country identified in subsection 832-320(3).

in an earlier income year, all or part of a deduction of the entity in respect of a payment that gave rise to a *hybrid payer mismatch was not allowable under section 832-285; and

an amount of *dual inclusion income is:

available to be applied by the *hybrid payer in the adjustment year; and

*subject to Australian income tax for the purposes of subsection 832-680(1) in the adjustment year; and

*subject to foreign income tax for the purposes of subsection 832-680(1) in the non-including country identified in subsection 832-320(3).

apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and

the deduction is the *deduction component of a *reverse hybrid mismatch to which the payment gives rise.

the payment is made under a *structured arrangement to which the entity is not a *party; and

subsection 832-395(3) does not apply.

the *deduction component of the mismatch is a *foreign income tax deduction; and

the country in which the foreign income tax deduction arose does not have *foreign hybrid mismatch rules.

the payment gives rise to a *hybrid mismatch under section 832-400; and

subsection (3) or (4) applies.

the entity that made the payment;

the *reverse hybrid;

each entity that is an investor identified in paragraph 832-410(2)(c) in relation to the reverse hybrid.

the payment gives rise to a *deduction/non-inclusion mismatch; and

the payment meets the hybrid requirement in section 832-405.

the amount of the *deduction/non-inclusion mismatch; and

if there is an excess under either subparagraph 832-405(2)(b)(i) or (3)(b)(i)—the amount of the excess.

the payment is made directly, or indirectly through one or more interposed entities, to a *reverse hybrid; and

subsection (2) or (3) applies.

the investor country identified in subsection 832-410(3) is Australia; and

either:

the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to Australian income tax for an income year was instead worked out on the assumption in subsection (4); or

on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch or a *reverse hybrid mismatch.

the investor country identified in subsection 832-410(3) is a foreign country; and

either:

the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to foreign income tax for a *foreign tax period was instead worked out on the assumption in subsection (4); or

on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch or a *reverse hybrid mismatch.

by the same entity; but

directly to the investing taxpayer identified in paragraph 832-410(3)(a) or (b).

subsection (2) applies to the entity in relation to a country and the payment; and

subsection (3) applies to the entity in relation to a different country and the payment.

the test entity is formed in the formation country; and

for the formation country, the test entity is:

not a *liable entity; and

for Australia—not a *member of a *consolidated group; and

(c) for the formation country, another entity (an investor) is a liable entity in respect of income or profits of the test entity.

(a) an investor identified in paragraph (2)(c) is a *liable entity (an investing taxpayer) in respect of its own income or profits, but not in respect of the test entity’s income or profits; or

(b) an entity that is a liable entity (also an investing taxpayer) in respect of the investor’s income or profits is not also a liable entity in respect of the test entity’s income or profits.

apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and

the deduction is the *deduction component of a *branch hybrid mismatch to which the payment gives rise.

the payment is made under a *structured arrangement to which the entity is not a *party; and

subsection 832-470(3) does not apply.

the *deduction component of the mismatch is a *foreign income tax deduction; and

the country in which the foreign income tax deduction arose does not have *foreign hybrid mismatch rules; and

(c) subsection 23AH(4A) of the Income Tax Assessment Act 1936 does not apply in relation to the branch hybrid mismatch.

the payment gives rise to a *hybrid mismatch under section 832-475; and

subsection (3) or (4) applies.

the entity that made the payment;

the *branch hybrid.

the payment gives rise to a *deduction/non-inclusion mismatch; and

the mismatch, or a part of the mismatch, meets the hybrid requirement in section 832-480.

the amount of the *deduction/non-inclusion mismatch; and

if there is an excess under either subparagraph 832-480(2)(b)(i) or (3)(b)(i)—the amount of the excess.

the payment is made directly, or indirectly through one or more interposed entities, to a *branch hybrid; and

subsection (2) or (3) applies.

the residence country identified in subsection 832-485(2) is Australia; and

either:

the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to Australian income tax for an income year was instead worked out on the assumption in subsection (4); or

on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch or a *hybrid payer mismatch.

the residence country identified in subsection 832-485(2) is a foreign country; and

either:

the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to foreign income tax for a *foreign tax period was instead worked out on the assumption in subsection (4); or

on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch or a *hybrid payer mismatch.

if the residence country is Australia—this Act; or

if the residence country is a foreign country—the law of the residence country relating to *foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax).

subsection (2) applies to the entity in relation to a country and a payment; and

subsection (4) applies to the entity in relation to the payment.

the entity satisfies the residency test in subsection 832-555(9) and is a *liable entity in respect of its own income or profits; and

the payment is treated as income derived by the liable entity in carrying on a business at or through a *PE in another country; and

as a result of an exemption or other tax concession to which that liable entity is entitled in respect of income derived in carrying on a business at or through the PE, the payment is not:

if the residence country is Australia—*subject to Australian income tax; or

if the residence country is a foreign country—*subject to foreign income tax in that foreign country.

(a) the payment is treated as not having been derived in carrying on a business at or through a *PE of the entity, or as otherwise not having a sufficient connection to a taxable presence in the branch country, for the purposes of:

if the branch country is Australia—this Act; or

if the branch country is a foreign country—the law of the branch country relating to *foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax); and

as a result, the payment is not:

if the branch country is Australia—*subject to Australian income tax; or

if the branch country is a foreign country—*subject to foreign income tax in that foreign country.

the residence country has entered into, with the branch country:

if either the residence country or the branch country is Australia—an *international tax agreement; or

if subparagraph (i) does not apply—a treaty or other agreement relating to the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital; and

the agreement or treaty (as the case requires) contains:

if either the residence country or the branch country is Australia—a *permanent establishment article; or

if subparagraph (i) does not apply—a provision corresponding to a permanent establishment article.

the primary response country does not have hybrid mismatch rules; and

the relevant parties are in the same control group, or the mismatch arose under a structured arrangement.

apart from this section, the entity would be entitled to a deduction in an income year; and

the deduction is a *deduction component of a *deducting hybrid mismatch.

the secondary response is required (see subsection (2)); and

subsection (3) or (4) applies.

a *liable entity in respect of the income or profits of the *deducting hybrid satisfies the residency test in subsection 832-555(9) in the primary response country; and

(b) the primary response country has *foreign hybrid mismatch rules, or another law that has substantially the same effect as foreign hybrid mismatch rules.

the *deducting hybrid;

if one or more entities other than the deducting hybrid is a *liable entity in respect of the income or profits of the deducting hybrid in a deducting country—each such liable entity.

the only *deduction components of the mismatch are *foreign income tax deductions; and

neither country in which a foreign income tax deduction arose has *foreign hybrid mismatch rules, or another law that has substantially the same effect as foreign hybrid mismatch rules.

the payment or other amount gives rise to a *deduction/deduction mismatch; and

the entity is:

for a payment—the entity that makes the payment; or

for an amount that represents the decline in value of a depreciating asset (see paragraph 832-110(4)(a))—the entity that holds the asset; or

for an amount that represents a share in the net loss of a partnership or other transparent entity (see paragraph 832-110(4)(b))—an entity that has an interest in the partnership or other transparent entity; and

the entity is:

a *liable entity in at least one deducting country; or

a *member of a *consolidated group.

the only *liable entity in respect of income or profits of the *deducting hybrid is the deducting hybrid; and

the liable entity satisfies the residency test in subsection (9) in both deducting countries.

the *deducting hybrid is itself the *liable entity in each deducting country; and

in one deducting country, the deducting hybrid does not satisfy the residency test in subsection (9); and

(c) in the other deducting country, the deducting hybrid does satisfy the residency test;

in both deducting countries, the same entity is the *liable entity in respect of the income or profits of the *deducting hybrid; and

in one deducting country, the liable entity does not satisfy the residency test in subsection (9); and

(c) in the other deducting country, the liable entity does satisfy the residency test;

the *liable entity for one deducting country is a different entity to the entity that is the liable entity for the other deducting country; and

in one deducting country, the *deducting hybrid is the liable entity;

the *liable entity for one deducting country is a different entity to the entity that is the liable entity for the other deducting country; and

the *deducting hybrid is not the liable entity in either country; and

in one deducting country, the entity that is a liable entity is also a liable entity in respect of the income or profits of the entity that is the liable entity in the other deducting country;

the *liable entity for one deducting country is a different entity to the entity that is the liable entity for the other deducting country; and

subsections (6) and (7) do not apply; and

in one deducting country, the deducting hybrid and the liable entity both satisfy the residency test in subsection (9);

if the country is Australia—the entity is an *Australian entity; or

if the country is a foreign country:

the entity is a resident of the foreign country for the purposes of the law of the foreign country relating to *foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax); or

the tax base, as it relates to foreign income tax (except credit absorption tax, unitary tax or a withholding-type tax), includes income from worldwide sources.

starting with the lesser of the amounts of each deduction or *foreign income tax deduction to which the amount gives rise; and

reducing (but not below nil) the result from paragraph (a) by the amount of any *dual inclusion income that is available to be applied in working out the neutralising amount.

the *deducting hybrid is eligible to apply the amount (see subsection 832-680(7)); and

the amount is *subject to Australian income tax for the purposes of subsection 832-680(1) in the income year mentioned in subsection 832-530(1); and

the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the foreign country in which the *foreign income tax deduction arose.

the *deducting hybrid is eligible to apply the amount (see subsection 832-680(7)); and

the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the foreign country in which one of the *foreign income tax deductions arose, and in the same *foreign tax period; and

the amount is also subject to foreign income tax for the purposes of subsection 832-680(1) in the foreign country in which another of the foreign income tax deductions arose.

in an earlier income year, all or part of a deduction of the entity in respect of an amount that gave rise to a *deducting hybrid mismatch was not allowable under section 832-530; and

an amount of *dual inclusion income is:

available to be applied by the *deducting hybrid in the adjustment year; and

*subject to Australian income tax for the purposes of subsection 832-680(1) in the adjustment year; and

*subject to foreign income tax for the purposes of subsection 832-680(1) in the foreign country in which the *foreign income tax deduction arose.

the payment gives rise to a *hybrid mismatch under section 832-620; and

an item in the table in subsection (2) applies to the importing payment.

an item higher in the table applies to one or more other importing payments in relation to the offshore hybrid mismatch; and

the offshore hybrid mismatch is, or will be, fully neutralised by the application of this Subdivision, and equivalent provisions of applicable *foreign hybrid mismatch rules, to those other importing payments.

either:

apart from section 832-610, the payment, or a part of the payment, gives rise to a deduction in an income year covered by subsection (2); or

the payment, or a part of the payment, gives rise to a *foreign income tax deduction in a foreign country that has *foreign hybrid mismatch rules, in a *foreign tax period covered by subsection (2); and

the payment is made directly, or indirectly through one or more interposed entities, to another entity; and

(c) the other entity (the offshore deducting entity) is:

the entity that made the payment that gave rise to the offshore hybrid mismatch; or

if the offshore hybrid mismatch is a *deducting hybrid mismatch—the *deducting hybrid.

it ends at or after the end of the foreign tax period in which a *deduction component of the *offshore hybrid mismatch arose; and

it has at least one day in common with that period.

it is sufficient if payments exist between each interposed entity, and it is not necessary to demonstrate that each payment in a series of payments funds the next payment, or is made after the previous payment; and

each payment made by an interposed entity must:

give rise to a *foreign income tax deduction in a country that does not have *foreign hybrid mismatch rules; and

not give rise to a *deduction/non-inclusion mismatch.

(a) a payment is made to an entity (the first entity); and

(b) another entity (the second entity) makes a payment (the second payment) to a third entity; and

the first entity and the second entity are in the same *Division 832 control group; and

under the law of a foreign country relating to *foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax):

a *foreign income tax deduction arises in respect of the second payment; and

the foreign income tax deduction may, as a result of a concessional feature of that law, be transferred to, shared with, or otherwise applied by, the first entity.

a payment as having been made by the first entity to the second entity; and

the payment as having given rise to a *foreign income tax deduction (but not a *deduction/non-inclusion mismatch) in the foreign country mentioned in paragraph (4)(d).

the importing deduction amount worked out under subsection (2) in relation to the deduction; and

the amount worked out using the following formula:

unless paragraph (b) applies—the amount of the *offshore hybrid mismatch; or

if an item higher in the table in subsection 832-615(2) applies to one or more other *importing payments in relation to the offshore hybrid mismatch—the amount of the offshore hybrid mismatch that is not, or will not be, neutralised by the application of this Subdivision, and equivalent provisions of applicable *foreign hybrid mismatch rules, in relation to those other importing payments.

identifying each *importing payment in relation to the *offshore hybrid mismatch to which the same item in the table in subsection 832-615(2) applies; and

working out under subsection (2) the importing deduction amount in relation to the deduction or *foreign income tax deduction to which each such importing payment gives rise; and

summing the results from paragraph (b) for each such importing payment.

if the *importing payment is made directly to the offshore deducting entity—the amount of the deduction or foreign income tax deduction; or

if the importing payment is made indirectly through one or more interposed entities to the offshore deducting entity—the lesser of:

the amount of the deduction or foreign income tax deduction; and

the smallest amount of any foreign income tax deduction to which a payment by an interposed entity gave rise.

(a) a payment made in a particular *foreign tax period gave rise to an *offshore hybrid mismatch (the original mismatch); and

the original mismatch is only partly neutralised by the application of this Subdivision and equivalent provisions of applicable *foreign hybrid mismatch rules.

the offshore deducting entity had made a payment in the next *foreign tax period; and

(b) the payment gave rise to an *offshore hybrid mismatch (the residual mismatch); and

the amount of the residual mismatch was the amount of the original mismatch that was not neutralised by the application of this Subdivision and equivalent provisions of applicable *foreign hybrid mismatch rules.

it is *subject to Australian income tax in an income year;

it is *subject to foreign income tax in a foreign country in a *foreign tax period;

it is subject to foreign income tax in a foreign country (other than the country mentioned in paragraph (b)) in a foreign tax period.

(a) an amount of assessable income of an entity (the assessable amount) would, apart from this subsection, be *subject to Australian income tax; and

an amount of *foreign income tax (except *credit absorption tax, *unitary tax or a withholding-type tax) paid in respect of the assessable amount counts towards a *tax offset for an entity under Division 770;

if the amount of the tax offset equals or exceeds the amount of *tax that would, having regard only to the assessable amount and the rate at which tax is imposed on the entity, be payable on the assessable amount—the assessable amount is treated as if it were not subject to Australian income tax; and

if the amount of the tax offset is a proportion of the amount of that tax—then that proportion of the assessable amount is treated as if it were not subject to Australian income tax.

an entity is a member of a dual inclusion income group in a country (see subsection (6)); and

(b) an amount of income or profits of the entity (the on-payment amount) is a payment received by the entity from another member of the dual inclusion income group at a time; and

(c) it is reasonable to conclude that the payment was funded by an amount of income or profits of the other member (the funding income or profits); and

the funding income or profits were:

if the country mentioned in paragraph (a) is Australia—*subject to Australian income tax; or

if the country mentioned in paragraph (a) is a foreign country—*subject to foreign income tax in the foreign country; and

the funding income or profits were not *dual inclusion income under subsection (1) (disregarding subsection (5)) in the country.

if the country mentioned in paragraph (4)(a) is Australia—*subject to Australian income tax in the income year in which the time mentioned in paragraph (4)(b) occurs; or

if the country mentioned in paragraph (4)(a) is a foreign country—*subject to foreign income tax in the foreign country in the *foreign tax period in which the time mentioned in paragraph (4)(b) occurs.

the entity that is a *liable entity in respect of the income or profits of each of the entities is the same entity; and

no other entity is a liable entity in respect of the income or profits of any of the entities.

the entity; or

if paragraph (a) does not apply and the entity is a member of a dual inclusion income group in any country—an entity that is a member of the dual inclusion income group.

(a) the paying entity, the interposed foreign entity and another foreign entity (the ultimate parent entity) are in the same Division 832 control group; and

the payment is not subject to Australian income tax; and

(c) the highest rate of foreign income tax (the foreign country rate) on the payment is 10% or less; and

it is reasonable to conclude (having regard to certain matters) that the entity, or one of the entities, that entered into or carried out all part of the scheme did so for a purpose including a purpose of enabling a deduction to be obtained in respect of the payment, or enabling foreign income tax to be imposed on the payment at a rate of 10% or less.

the rate of foreign income tax on the payment in the country of residence of the ultimate parent entity would be less than or equal to the foreign country rate; and

the payment would not give rise to a hybrid mismatch of a particular kind.

(a) an entity (the paying entity) makes a payment under a *scheme to a *foreign entity (the interposed foreign entity), either directly, or indirectly through one or more interposed *Australian trusts or Australian partnerships (within the meaning of Part X of the Income Tax Assessment Act 1936); and

(b) the paying entity, the interposed foreign entity and another foreign entity (the ultimate parent entity) are in the same *Division 832 control group; and

the ultimate parent entity is not controlled by any other entity (other than an entity that is not a member of the Division 832 control group); and

the payment is of:

(i) an amount of interest (Income Tax Assessment Act 1936); orwithin the meaning of subsection 128A(1AB) of the

an amount under a *derivative financial arrangement; and

the paying entity is entitled to a deduction in an income year in respect of the payment (disregarding this section); and

the payment is not *subject to Australian income tax; and

either:

(i) the payment is *subject to foreign income tax in one or more foreign countries, and the highest rate (the foreign country rate) at which the payment is subject to foreign income tax is 10% or less; or

the payment is not subject to foreign income tax; and

it is reasonable to conclude (having regard to the matters in subsection (2)) that the entity, or one of the entities, who entered into or carried out the scheme or any part of the scheme did so for a principal purpose of, or for more than one principal purpose that includes a purpose of:

enabling a deduction to be obtained in respect of the payment; and

enabling foreign income tax to be imposed on the payment at a rate of 10% or less, or enabling foreign income tax not to be imposed on the payment.

the facts and circumstances that exist in relation to the *scheme;

if the payment is an amount of interest as mentioned in subparagraph (1)(d)(i)—the source of the funds used by the interposed foreign entity to provide the paying entity with the loan or other debt interest in respect of which the payment of interest is made;

whether the interposed foreign entity engages in substantial commercial activities in carrying on a banking, financial or other similar business.

the following requirements are satisfied:

(i) the amount of the payment is taken into account under Part X of the Income Tax Assessment Act 1936;

the sum of the *attribution percentages of each *attributable taxpayer in relation to the interposed foreign entity, for the purposes of sections 456 and 457 of that Act in respect of the income year in which the payment is made, is at least 100%; or

requirements similar to those in paragraph (a), under the law of a foreign country that has substantially the same effect as Part X of that Act in respect of that foreign country, are satisfied in relation to the interposed foreign entity; or

assuming that the payment were treated as being divided into 2 separate payments:

the requirements in paragraph (a) would be satisfied in relation to one of those separate payments; and

the requirements in paragraph (b) would be satisfied in relation to the other of those separate payments.

the payment would:

be *subject to foreign income tax at a rate that is the same as, or less than, the foreign country rate; or

not be subject to foreign income tax; and

the payment would not give rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch or a *reverse hybrid mismatch.

(a) an entity (the original paying entity) makes a payment of a kind mentioned in subparagraph 832-725(1)(d)(i) to another entity; and

the other entity, or a further entity, pays an amount of that kind to a foreign entity; and

the payments mentioned in paragraphs (a) and (b) are made under an arrangement involving back-to-back loans or an arrangement that is economically equivalent and intended to have a similar effect to back-to-back loans.

where a determination made for the purposes of paragraph (2)(a) specifies a kind of *scheme—the scheme mentioned in subsection 832-725(1) is of that kind; or

where a determination made for the purposes of paragraph (2)(b) specifies a kind of circumstances in relation to a scheme—circumstances of that kind exist in relation to the scheme mentioned in subsection 832-725(1).

specifies kinds of *schemes; and

specifies kinds of circumstances in relation to schemes.

a loss from a *Division 230 financial arrangement; and

an amount treated under section 832-790 as a separate loss from a Division 230 financial arrangement.

a loss from a *Division 230 financial arrangement; or

an amount treated under section 832-790 as a separate loss from a Division 230 financial arrangement.

832-240(1)(a);

832-335(1)(a);

832-565(1)(a).

a gain that, apart from this Division, would be included in an entity’s assessable income for an income year under Division 230;

a loss that, apart from this Division, would be allowable as a deduction to an entity for an income year under Division 230;

a gain or a loss that, apart from this Division, would be dealt with in accordance with subsection 230-310(4) in relation to an income year.

to the extent to which the gain represents a *currency exchange rate effect, treat it as a separate gain or loss;

to the extent that it does not represent that effect, treat it as a separate gain or loss from the *financial arrangement to which this Division applies.

to the extent to which the loss represents a *currency exchange rate effect, treat it as a separate gain or loss;

to the extent that it does not represent that effect, treat it as a separate gain or loss from the *financial arrangement to which this Division applies.

received by the company; and

that, apart from subsection (4A) of this section, would give rise to a branch hybrid mismatch;

either:

(i) an amount of interest (a notional payment) is taken under section 160ZZZA to be incurred by an Australian branch of a foreign bank in respect of a notional borrowing; or

(ii) an amount (also a notional payment) is taken under section 160ZZZE to be an amount paid by an Australian branch of a foreign bank in respect of a notional derivative transaction; and

the amount would, apart from this section, give rise to a deduction for the Australian branch in a year of income; and

the amount of the deduction exceeds the amount worked out under subsection (3).

the amount of the notional payment that is subject to foreign income tax;

so much (if any) of the amount of the notional payment as it is reasonable to conclude is effectively funding expenses covered by subsection (4) or (5) (about non-deductible third party expenses);

the amount (if any) of income or profits of the Australian branch that is both:

(i) subject to Australian income tax for the purposes of subsection 832-680(1) of the Income Tax Assessment Act 1997 in the year of income mentioned in paragraph (1)(b); and

(ii) subject to foreign income tax for the purposes of subsection 832-680(1) of the Income Tax Assessment Act 1997 in the foreign country in which the foreign bank is a resident.

the notional payment is in respect of a notional borrowing; and

it is reasonable to conclude that the notional borrowing is effectively funded by actual borrowings by the foreign bank;

the notional payment is in respect of a notional derivative transaction; and

it is reasonable to conclude that the foreign bank has hedged or managed all or part of its risk in relation to the notional derivative transaction by entering into actual transactions;

an amount of a deduction was not allowable for the branch in an earlier year of income under subsection 160ZZZL(2); and

this Part applies in the calculation of the foreign bank’s taxable income in the adjustment year; and

an amount of income or profits of the Australian branch is:

(i) subject to Australian income tax for the purposes of subsection 832-680(1) of the Income Tax Assessment Act 1997 in the adjustment year; and

subject to foreign income tax for the purposes of that subsection in the foreign country in which the foreign bank is a resident.

the amount is dual inclusion income; and

(b) the amount has been applied by a provision of Income Tax Assessment Act 1997.Division 832 of the

a loss from a *Division 230 financial arrangement; or

an amount treated under section 832-790 as a separate loss from a Division 230 financial arrangement.

if (disregarding section 832-790) you made a loss from the *financial arrangement, and the relevant amount does not exceed the amount of the loss—the amount of the loss you made is reduced by the relevant amount;

if (disregarding section 832-790) you made a loss from the financial arrangement, and the relevant amount exceeds the amount of the loss:

you do not make a loss from the financial arrangement; and

instead, you make a gain from the financial arrangement equal to the amount of the excess;

if (disregarding section 832-790) you made a gain from the financial arrangement—the amount of the gain is increased by the relevant amount.

of a *deduction/non-inclusion mismatch—has the meaning given by subsections 832-105(1) and 832-105(2); and

of a *deduction/deduction mismatch—has the meaning given by subsection 832-110(2); and

of a *hybrid financial instrument mismatch—has the meaning given by subsection 832-200(2); and

of a *hybrid payer mismatch—has the meaning given by subsection 832-305(2); and

of a *reverse hybrid mismatch—has the meaning given by subsection 832-395(2); and

of a *branch hybrid mismatch—has the meaning given by subsection 832-470(2); and

of a *deducting hybrid mismatch—has the meaning given by subsection 832-545(2); and

of an *offshore hybrid mismatch—means the *deduction component of the relevant hybrid financial instrument mismatch, hybrid payer mismatch, reverse hybrid mismatch, branch hybrid mismatch or deducting hybrid mismatch.

for a *hybrid payer mismatch—has the meaning given by section 832-330; and

for a *deducting hybrid mismatch—has the meaning given by section 832-560.

Subdivision 832-C (Hybrid financial instrument mismatch);

Subdivision 832-D (Hybrid payer mismatch);

Subdivision 832-E (Reverse hybrid mismatch);

Subdivision 832-F (Branch hybrid mismatch);

Subdivision 832-G (Deducting hybrid mismatch);

Subdivision 832-J (Integrity rule).

the distribution is one to which section 207-158 (which is about foreign income tax deductions) applies;

the distribution is one to which section 207-158 (which is about foreign income tax deductions) applies;

(a) the eligible CFC receives, either directly or indirectly through one or more interposed trusts or partnerships, a foreign equity distribution (within the meaning of the Income Tax Assessment Act 1997) from a company; and

at the time the distribution is made, both the eligible CFC and the company are residents of the same listed country or unlisted country.

all or part of the distribution gives rise to a *foreign income tax deduction; and

the exception in subsection (2) does not apply to the distribution.

the *foreign income tax deduction arises because the company that made the distribution is recognised under the law of the foreign country in which the deduction arises as being used for collective investment; and

*foreign income tax or a withholding-type tax was payable in respect of the distribution.

before 9 May 2017, any of the following occurred:

(i) an ADI issued an Additional Tier 1 capital instrument (within the meaning of the prudential standards determined by APRA under Banking Act 1959 and as in force at the time this Schedule commences);section 11AF of the

(ii) a general insurance company issued an Additional Tier 1 capital instrument (within the meaning of the prudential standards determined by APRA under Insurance Act 1973 and as in force at the time this Schedule commences);section 32 of the

(iii) a life insurance company issued an Additional Tier 1 capital instrument (within the meaning of the prudential standards determined by APRA under Life Insurance Act 1995 and as in force at the time this Schedule commences); andsection 230A of the

the instrument is callable, and there is a scheduled call date of the instrument on or after 9 May 2017.

at the time the distribution is made, the instrument is an Additional Tier 1 capital instrument within the meaning of the applicable prudential standards as in force at that time; and

the distribution is made on or before the first scheduled call date of the instrument that occurs on or after 9 May 2017.

the ADI, general insurance company or life insurance company sought prior written approval from APRA to exercise the call option; and

the prior written approval was not received.