111AA Rules required for blended CFC regime

Summary

This section outlines the process of allocating CFC taxes where the CFC regime blends the income and taxes of CFCs in different jurisdictions.

Details

Definitions

(1) “applicable rate” means the rate at which foreign taxes on controlled foreign company income generally fully offset the controlled foreign company tax through the tax credit mechanism applicable to the controlled foreign company tax regime;

“attributable income of the entity” means the constituent entity-owner’s proportionate share of the income of the constituent entity in the jurisdiction in which the constituent entity is located as determined under the blended CFC tax regime;

“blended CFC tax regime” means a controlled foreign company tax regime that aggregates income, losses, and creditable taxes of all the controlled foreign companies of a constituent entity-owner for the purposes of calculating the constituent entity-owner’s tax liability under the regime and that has an applicable rate of less than 15%, but does not include a regime that takes into account a group’s domestic income except that it may allow losses incurred by the constituent entity-owner to reduce the controlled foreign company income inclusion;

“jurisdictional ETR” means the effective tax rate for entities located in a jurisdiction as calculated under section 111AC without regard to any covered taxes under a controlled foreign company tax regime, but including income tax expense attributable to a qualified domestic top-up tax of a jurisdiction where the blended CFC tax regime allows a foreign tax credit for the qualified domestic top-up tax on the same terms as any other creditable covered tax.

Application

(2) For fiscal years that begin on or before 31 December 2025 and end no later than 30 June 2027, for the purposes of section 111Z(4) (being the allocation of CFC taxes), allocable blended CFC tax shall be allocated from a constituent entity-owner to a constituent entity. The allocation shall be calculated as:

blended CFC allocation key x allocable blended CFC tax

sum of all blended CFC allocation keys

Where-

allocable blended CFC tax is the amount of tax charge incurred by a constituent entity-owner under a blended CFC tax regime, and

blended CFC allocation key is calculated as follows:

attributable income of the entity x (applicable rate – jurisdictional ETR)

(3) Where the jurisdictional ETR equals or exceeds the applicable rate or the minimum tax rate, the blended CFC allocation key for the constituent entity shall be deemed to be zero.

Relevant Date: Finance Act 2024