111U. Adjusted covered taxes

(1) The adjusted covered taxes of a constituent entity for a fiscal year shall be determined by adjusting the sum of the current tax expense accrued in the financial accounting net income or loss with respect to covered taxes for the fiscal year by—

(a) the net amount of the additions and reductions to covered taxes for the fiscal year as set out in subsections (2) and (3),

(b) the total deferred tax adjustment amount as set out in section 111X,

(c) any increase or decrease in covered taxes recorded in equity or other comprehensive income relating to amounts included in the calculation of qualifying income or loss that will be subject to tax under local tax rules, and

(d) the net amount of the additions and reductions to covered taxes for the fiscal year as set out in section 111W.

(2) The additions to the covered taxes of a constituent entity for the fiscal year shall include—

(a) any amount of covered taxes accrued as an expense in the profit before taxation in the financial accounts of the constituent entity,

(b) any amount of qualifying loss deferred tax asset that has been used by the constituent entity pursuant to section 111Y(2),

(c) any amount of covered taxes relating to an uncertain tax position of the constituent entity previously excluded under subsection (3)(d) that is paid in the fiscal year, and

(d) any amount of credit or refund in respect of a qualified refundable tax credit, or marketable transferable tax credit, that was accrued as a reduction to the current tax expense in the financial accounts of the constituent entity.

(3) The reductions to the covered taxes of a constituent entity for the fiscal year shall include—

(a) the amount of current tax expense with respect to income excluded from the calculation of qualifying income or loss of the constituent entity under Chapter 3,

(b) any amount of credit or refund in respect of a non-qualified refundable tax credit, or non-marketable transferable tax credit, that was not recorded as a reduction to the current tax expense in the financial accounts of the constituent entity,

(c) any amount of covered taxes refunded or credited to a constituent entity, other than a qualified refundable tax credit, or marketable transferable tax credit, that was not treated as an adjustment to current tax expense in the financial accounts of the constituent entity,

(d) the amount of current tax expense of the constituent entity which relates to an uncertain tax position,

(e) any amount of current tax expense of the constituent entity that is not expected to be paid within 3 years after the end of the fiscal year,

(f) the amount received by the originator, as defined in section 111V of a non-marketable transferable tax credit in exchange for the credit,

(g) any excess received by the purchaser of the face value of a non-marketable transferable tax credit over its purchase price in proportion to the amount of the credit used to satisfy its liability for a covered tax, and

(h) the amount of any gain received by the purchaser on the transfer of a non-marketable transferable tax credit provided the transfer occurs during the fiscal year concerned.

(4) Where an amount of covered tax is described in more than one of subsection (1), (2) or (3), the current tax expense shall only be adjusted once in the calculation of adjusted covered taxes of a constituent entity for a fiscal year.

(5) Subsection (6) applies where, for a fiscal year—

(a) there is no net qualifying income in a jurisdiction, and

(b) the amount of adjusted covered taxes for that jurisdiction is—

(i) less than zero, and

(ii) less than an amount equal to the net qualifying loss multiplied by the minimum tax rate (in this section referred to as the ‘expected adjusted covered taxes’).

(6) Subject to subsection (9), an amount calculated as the difference between—

(a) the amount of adjusted covered taxes of a jurisdiction for a fiscal year, and

(b) the amount of expected adjusted covered taxes of a jurisdiction for a fiscal year,

shall be treated as an additional top-up tax for the fiscal year.

(7) The amount of additional top-up tax referred to in subsection (6) shall be allocated to each constituent entity in the jurisdiction in accordance with section 111AF(3).

(8) For the purposes of subsection (9), excess negative tax expense means—

(a) an amount equal to the amount calculated under subsection (6) in respect of a jurisdiction for a fiscal year in which an MNE group or large-scale domestic group has—

(i) no qualifying income, or

(ii) a qualifying loss,

for that jurisdiction, or

(b) an amount equal to the negative adjusted covered taxes in respect of a jurisdiction for a fiscal year in which an MNE group or large-scale domestic group has qualifying income for that jurisdiction.

(9) On the making of an election by a filing constituent entity, or where the top-up tax percentage for a jurisdiction for a fiscal year as calculated in accordance with section 111AD(2) exceeds the minimum tax rate, an MNE group or large-scale domestic group shall exclude the excess negative tax expense from its adjusted covered taxes for a jurisdiction in respect of the fiscal year and establish an excess negative tax expense carry-forward.

(10) In each fiscal year, following a fiscal year in respect of which subsection (9) applied to the calculation of adjusted cover taxes for a jurisdiction, where an MNE group or large-scale domestic group has qualifying income and adjusted covered taxes for that jurisdiction, the MNE group or large-scale domestic group shall—

(a) reduce the adjusted covered taxes for the jurisdiction by the balance of the excess negative tax expense carry-forward but the amount of adjusted covered taxes after such reduction shall not be less than zero, and

(b) reduce the balance of the excess negative tax expense carry-forward by the same amount as the amount referred to in paragraph (a).

(11) Subsection (9) shall not apply to any excess negative tax expense attributable to an amount of a loss that is carried back and applied against income for prior taxable years for domestic tax purposes.

(12) (a) Where an MNE group or large-scale domestic group disposes of one or more constituent entities located in a jurisdiction in respect of which it has made the election in accordance with subsection (9), the excess negative tax expense carry-forward shall remain an attribute of that MNE group or large-scale domestic group, as the case may be.

(b) Where an MNE group or large-scale domestic group disposes of all constituent entities located in a jurisdiction, and re-acquires or establishes constituent entities located in that jurisdiction in a subsequent fiscal year, the balance of the excess negative tax expense carry-forward shall be taken into account in determining the adjusted covered taxes for the jurisdiction beginning with that fiscal year.