Importantly, the paper specifically identifies the double non-taxation resulting from issuance of certain Redeemable Preference Shares (RPS) by Australian subsidiaries of Japanese multinationals as an area for review in terms of BEPS Action 2 (Neutralise the Effects of Hybrid Mismatch Arrangements).
As such, and although it has not yet been formally decided, there is a distinct possibility that the Japanese Foreign Dividend Exclusion currently available on RPS dividends that qualify as tax deductible debt in Australia (i.e., hybrid treatment) could be removed. This is of course subject to detailed consultation, and the commercial, legal and accounting ramifications need to be very carefully considered as part of this.
Naturally, where such funding structures have already been implemented, there is a question as to how any change in law would take effect. I expect that at least one key issue raised in consultation will be to provide 'grandfathering' relief for those RPS already on issue. However, in the new world of BEPS and pressure on government revenues this would be far from assured!
To the extent that your organisation is potentially impacted, it is our recommendation that a plan be initiated in consultation with head office now. At KPMG we are devising a consistent 'action plan' for all of our Japan headquartered clients affected by the potential change in law, and can therefore provide best practice insights and expertise on how to proactively manage its impact on your business. Please feel free to contact me, Nobuaki Yoshioka or your main KPMG contact to discuss this further.
For other multinationals that are not directly impacted, this is yet another example of how BEPS is evolving across the globe and acting as the impetus to bring about change.