Definition of hybrid

The term ‘hybrid’ is often used in relation to entities or financial instruments which are treated differently for tax purposes in different countries. An entity might be transparent in one country, so that its profits accrue directly to the owners for tax purposes, but opaque in another, so that the entity is taxed directly irrespective of the capacity of the owners.

An instrument might be treated as a share (or equity) in one country but as debt (or loan capital) in another country. The BEPS project has focused on preventing the loss of tax through tax mismatches and the UK has introduced additional anti-avoidance rules in this area. [1]