Hybrid Mismatches

Hybrid mismatches occur when a company's tax rules treat a financial arrangement or entity differently in two countries. This can lead to situations where income isn't taxed as intended, allowing some firms to reduce their overall tax burden unfairly. For example, a company might route profits through a hybrid entity or instrument that is considered income in one country but not in another, resulting in little or no taxes paid globally. These mismatches can be exploited for tax advantages but also cause revenue loss for governments and distort fair competition. Efforts worldwide are underway to detect and prevent such practices.