How to reproduce:
- Spawn in a NPC trainer
- Give them any Pokémon (I used this mew in my example):
Mew
Ability: Synchronize
Level: 100
Shiny: No
Happiness: 255
HARDY Nature
Poke Ball: poke_ball
Growth: Huge
Clones: 0
- Earthquake

- Get a paradox Pokémon with a booster energy (I used this Iron Moth in my example):
IronMoth @ Booster Energy
Ability: Quark Drive
Level: 100
Shiny: No
Happiness: 172
HARDY Nature
Poke Ball: poke_ball
Growth: Small
- Venoshock

Set the level cap rules to lvl 50:
Now what should happen is that a +1 (due to booster energy) Venoshock does 42.8-50.2% and Earthquake OHKO's in return (147 - 175.4%). However what happens is that Mew takes 75-80% and Earthquake does around 140 (40%) damage which is consistent with a lvl 50 mew vs a lvl 50 Iron Moth with lvl 100 stats.

If I set Iron Moths level to 50 now and do the above example, all the values are what they should be.

A few other things I noticed during this bug:
- Killing a Pokémon with the bugged Pokémon, seems to fix the issue, after which the calculations on the next Pokémon are also right
- On my screen it still displays the lvl 50 hp as its actual hp. If an opponent makes my total damage go over the lvl 50 hp but under the lvl 100 hp, I get stuck in a infinite waiting message (achieved by giving the mew 252 attack evs).
- It only happens with the item, activating the ability with electric terrain/sun does not make the glitch occur.