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The mismatch rules also apply to arrangements involving permanent establishments. This significantly increases the potential impact of the regime and is necessary because a permanent establishment can often be taxed locally as if it were a standalone entity but also as part of the larger entity in the parent company jurisdiction, creating similar potential for mismatches as hybrid entities.

The rules apply many of the provisions targeted at hybrid entities to permanent establishments. This particularly affects loss-making permanent establishments, as there are increased restrictions on using the loss in the UK alongside the risk that any loss may be forfeited altogether in certain circumstances.

These rules will potentially apply where the jurisdiction of the permanent establishment treats an advance of money from the parent jurisdiction as a loan, and accordingly allows deductions in respect of interest on it. From the point of view of the parent jurisdiction, the permanent establishment is not recognised as a separate entity and accordingly no taxable receipt is recognised, as the company cannot receive income from itself.

An arrangement will fall within these