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Anti-Hybrid Mismatch Rules: Beware of Mismatch Outcomes

As required by the EU Anti-Tax Avoidance Directive (ATAD), Finance Act 2019 introduced wide ranging anti-hybrid mismatch rules into Irish domestic tax legislation. These provisions apply in respect of all payments made or arising on or after 1 January 2020. These rules present some of the most complex tax provisions introduced in recent times introducing unique definitions, terminology and concepts not previously referenced under any other piece of Irish tax legislation. 

Impact of the rules

Under these Anti-Hybrid Mismatch rules, where a hybrid mismatch outcome arises, a corporation tax deduction may be denied in Ireland in respect of payments made by Irish tax resident companies. In addition, under certain specific circumstances, these provisions may result in certain hybrid payments being subject to tax in Ireland where previously they were not.

Generally speaking, tax hybridity arises due to the different characterisation by two jurisdictions of an entity, a payment or a business activity. Hybrid mismatches exploit these differences between tax systems in order to achieve a beneficial tax outcome either by way of a double deduction mismatch outcome, a deduction without inclusion mismatch outcome or by what is known as an imported mismatch. The Anti-Hybrid Mismatch rules aim to prevent companies benefiting from these mismatches by neutralising that benefit.

Types of mismatches

A double deduction mismatch outcome arises where a deduction is available for the same expense in two different jurisdictions against income not subject to tax in two jurisdictions i.e. offset against “dual inclusion” income.

A deduction without inclusion mismatch outcome refers to where a deduction is available in one jurisdiction without the corresponding income being subject to tax in the other jurisdiction. “Included” for this purpose includes payments which are taxable in the other jurisdiction, payments to entities who benefit from tax-exempt status (e.g. a charity), payments received in a wholly territorial regime which does not tax foreign source income or payments taxed under Controlled Foreign Company (CFC) rules or similar provisions.

An imported mismatch arises where an entity makes a payment that does not in itself give rise to a mismatch but where, due to a wider arrangement, a mismatch is created in a different jurisdiction that does not apply the same stringent anti-hybrid rules. These imported mismatch rules place a significant burden on Irish taxpayers to track payments and identify recipients throughout the company’s multinational structure in order to identify mismatch outcomes  

Taxpayers subject to these rules

The rules apply to all taxpayers that are subject to corporate tax in the EU including EU permanent establishments of non-EU companies. The rules only apply to cross border arrangements between “Associated Enterprises” (as defined under legislation) or to “Structured Arrangements” (certain arrangements between entities not considered associated).

The provisions apply to all forms of deductible payments including payments deductible for Capital Gains Tax purposes or expenditure qualifying for relief by way of capital allowances. There is no de-minimus exemption included under the Irish legislation and therefore all deductible payments regardless of their amount fall within these provisions.


These complex rules place a significant additional burden on Irish tax resident companies. Each tax deductible cross border payment made by an Irish resident company to an associated enterprise should now be considered in the context of these Anti-Hybrid Mismatch rules to determine whether a hybrid mismatch outcome has arisen which may result in a denial of the tax deduction in Ireland.

The rules are in effect since 1 January 2020 for all Irish companies irrespective of their accounting year end. It is therefore critical that Irish companies consider their current and future arrangements with associated enterprises in the context of these Anti-Hybrid Mismatch rules.   

How we can help

Grant Thornton’s tax team can help companies navigate these new and complex provisions.  As the analysis requires consideration of the taxation of payments in the recipient country, we work closely with our extensive Grant Thornton International network – present in 141 countries – to provide clients with seamless and efficient advice.  Please reach out to your usual Grant Thornton Ireland contact, or one of our experts below, if you would like to discuss further.

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