111AT. Determination of effective tax rate and top-up tax of investment entity

(1) Where a constituent entity of an MNE group or large-scale domestic group—

(a) is an investment entity,

(b) is not a tax transparent entity, and

(c) has not made an election in accordance with section 111AU or 111AV,

the effective tax rate of such an investment entity (in this section referred to as a ‘relevant investment entity’) shall be calculated separately from the effective tax rate of the jurisdiction in which it is located.

(2) (a) The effective tax rate of a relevant investment entity shall be equal to the relevant investment entity’s adjusted covered taxes, as determined in accordance with subsection (3), divided by an amount equal to the allocable share of the MNE group or large-scale domestic group in the qualifying income or loss of the relevant investment entity, as determined in accordance with subsection (5).

(b) Where more than one relevant investment entity is located in a jurisdiction, their effective tax rate shall be calculated by combining their adjusted covered taxes as well as the allocable share of the MNE group or large-scale domestic group in their qualifying income or loss.

(3) The adjusted covered taxes of a relevant investment entity shall be the sum of the adjusted covered taxes that are attributable to the allocable share of the MNE group or large-scale domestic group in the qualifying income of the relevant investment entity and the covered taxes allocated to the relevant investment entity in accordance with section 111Z, but shall not include any covered taxes accrued by the relevant investment entity attributable to income that is not part of the MNE group or large-scale domestic group’s allocable share of the relevant investment entity’s income.

(4) (a) The top-up tax of a relevant investment entity shall be an amount determined by the formula—

(A × (B-C)) -D

where—

A is the top-up tax percentage of the relevant investment entity, being a positive amount equal to the difference between the minimum tax rate and effective tax rate of the relevant investment entity,

B is the qualifying income of the relevant investment entity,

C is the substance-based income exclusion calculated for the relevant investment entity as determined in accordance with paragraph (c), and

D is the amount of qualified domestic top-up tax payable for the relevant investment entity for the fiscal year.

(b) Where more than one relevant investment entity of an MNE group or large-scale domestic group is located in a jurisdiction, the qualifying income or loss and substance-based income exclusion amounts of each relevant investment entity shall be combined to compute the effective tax rate of all of the relevant investment entities.

(c) The substance-based income exclusion amount of a relevant investment entity shall be determined in accordance with subsections (1) to (7) and (10) to (12) of section 111AE, taking into account only eligible tangible assets and eligible payroll costs of eligible employees of the relevant investment entity.

(5) For the purposes of this section, the allocable share of the MNE group or large-scale domestic group in the qualifying income or loss of a relevant investment entity shall be determined in accordance with section 111I taking into account only interests that are not subject to an election in accordance with section 111AU or 111AV.