111AS. Eligible distribution tax systems

(1) On the making of an election by a filing constituent entity, a constituent entity that is subject to an eligible distribution tax system shall include the amount, determined in accordance with subsection (2) as deemed distribution tax, in the adjusted covered taxes of that constituent entity for the fiscal year.

(2) The amount of the deemed distribution tax referred to in subsection (1) shall be the lesser of—

(a) the amount necessary to increase the effective tax rate as calculated in accordance with section 111AC for the jurisdiction of the constituent entity referred to in subsection (1) for the fiscal year to the minimum tax rate, and

(b) the amount of distribution tax that would have been due if the constituent entities located in the jurisdiction referred to in paragraph (a) had distributed all of their income that is subject to the eligible distribution tax system during the fiscal year.

(3) (a) Where an election is made under subsection (1), a deemed distribution tax recapture account shall be established for each fiscal year in which such an election applies.

(b) The amount of deemed distribution tax determined in accordance with subsection (2) for the jurisdiction shall be added to the deemed distribution tax recapture account for the fiscal year in which it was established.

(c) At the end of each subsequent fiscal year, the outstanding balances in the deemed distribution tax recapture accounts established for prior fiscal years shall be reduced in chronological order by the taxes paid by the constituent entities during the fiscal year in relation to actual or deemed distributions, but such reduction shall not exceed the amount of the outstanding balances.

(d) Any residual amount in the deemed distribution tax recapture accounts remaining after the application of paragraph (c) shall be reduced in chronological order by an amount equal to the net qualifying loss of a jurisdiction for the fiscal year multiplied by the minimum tax rate but such reduction shall not exceed the residual amount.

(4) Any residual amount of net qualifying loss multiplied by the minimum tax rate after the application of subsection (3)(d), for the jurisdiction, shall be carried forward to the following fiscal years and shall reduce in chronological order any residual amount in the deemed distribution tax recapture accounts remaining after the application of subsection (3) but such reduction shall not exceed the residual amount.

(5) The outstanding balance, if any, of the deemed distribution tax recapture account, on the last day of the fourth fiscal year after the fiscal year for which such account was established shall be treated as a reduction to the adjusted covered taxes previously determined for such fiscal year in respect of which the deemed distribution tax recapture account was established and the effective tax rate and top-up tax for that fiscal year shall be recalculated in accordance with section 111AF.

(6) Taxes that are paid during the fiscal year in relation to actual or deemed distributions shall not be included in adjusted covered taxes to the extent that they reduce a deemed distribution tax recapture account in accordance with subsections (3) and (4).

(7) (a) Where a constituent entity, that is subject to an election under subsection (1)—

(i) leaves the MNE group or large-scale domestic group, or

(ii) substantially all of its assets are transferred to a person that is not a constituent entity of the same MNE group or large-scale domestic group located in the same jurisdiction,

any outstanding balance of the deemed distribution tax recapture accounts in previous fiscal years in which such an account was established shall be treated as a reduction to the adjusted covered taxes for each of those fiscal years in accordance with section 111AF.

(b) Any additional top-up tax amount that would be due pursuant to paragraph (a) shall be multiplied by the following ratio to determine the additional top-up tax due for the jurisdiction:

A/B

where—

A is the qualifying income of the constituent entity for each fiscal year in which there is an outstanding balance of the deemed distribution tax recapture accounts for the jurisdiction, and

Bis the net qualifying income of the jurisdiction determined in accordance with section 111AC(3) for each fiscal year in which there is an outstanding balance of the deemed distribution tax recapture accounts for the jurisdiction.

(8) The election referred to in subsection (1) shall be made in accordance with section 111AAAD, and shall apply to all constituent entities located in the same jurisdiction for the fiscal year in which the election is made.