189. Ultimate Parent Entity that is a Flow-through Entity

Terms defined in s 157

• Covered Taxes

  Covered Taxes

  Defined · s 157

  “Covered Taxes” means— (a) taxes recorded in the financial accounts of a Constituent Entity with respect to its income or profits or its share of the income or profits of a Constituent Entity in which it owns an Ownership Interest; (b) taxes on distributed profits, deemed profit distributions, and non-business expenses imposed under an Eligible Distribution Tax System; (c) taxes imposed in lieu of a generally applicable corporate income tax; and (d) taxes levied by reference to retained earnings and corporate equity, including a Tax on multiple components based on income and equity, Finance (No. 2) but does not include any amount of— (a) Multinational Top-up Tax accrued by a Parent Entity under a Qualified Income Inclusion Rule; (b) Qualified Domestic Top-up Tax accrued by a Constituent Entity; (c) taxes attributable to an adjustment made by a Constituent Entity as a result of the application of a set of rules equivalent to Articles 2.4 to 2.6 of the GloBE Model Rules (including any provisions of the GloBE Model Rules associated with those articles) that are included in the domestic law of a jurisdiction and that are implemented and administered in a way that is consistent with the outcomes provided for under the GloBE Model Rules provided that such jurisdiction does not provide any benefits that are related to such rules; (d) a Disqualified Refundable Imputation Tax; (e) taxes paid by an insurance company in respect of returns to policy holders;

  Open s 157
• Entity

  Entity

  Defined · s 157

  “Entity” means— (a) any legal person (other than a natural person); or (b) an arrangement that prepares separate financial accounts, such as a partnership or trust;

  Open s 157
• Financial Year

  Financial Year

  Defined · s 157

  “Financial Year” means an accounting period with respect to which the Ultimate Parent Entity of the Multinational Enterprise Group prepares its Consolidated Financial Statements and in the case of Consolidated Financial Statements as defined in paragraph (d) of the definition of “Consolidated Financial Statements”, Financial Year means the calendar year;

  Open s 157
• Governmental Entity

  Governmental Entity

  Defined · s 157

  “Governmental Entity” means an Entity that meets all of the following criteria: (a) it is part of or wholly-owned by a government, (including any political subdivision or local authority thereof); (b) it does not carry on a trade or business and it has the principal purpose of— (i) fulfilling a government function; or (ii) managing or investing that government’s or jurisdiction’s assets through the making and holding of investments, asset management, and related investment activities for the government’s or jurisdiction’s assets; (c) it is accountable to the government on its overall performance, and provides annual information reporting to the government; and (d) its assets vest in such government upon dissolution and to the extent it distributes net earnings, such net earnings are distributed solely to such government with no portion of its net earnings inuring to the benefit of any private person;

  Open s 157
• International Organisation

  International Organisation

  Defined · s 157

  “International Organisation” means any intergovernmental organisation (including a supranational organisation) or wholly-owned agency or instrumentality thereof that meets all of the following criteria: (a) it is comprised primarily of governments; (b) it has in effect a headquarters or substantially similar agreement such as arrangements that entitle the organisation’s offices or establishments in the jurisdiction to privileges and immunities with the jurisdiction in which it is established; and (c) law or its governing documents prevent its income inuring to the benefit of private persons;

  Open s 157
• Minimum Rate

  Minimum Rate

  Defined · s 157

  “Minimum Rate” means fifteen per cent;

  Open s 157
• Multinational Enterprise Group

  Multinational Enterprise Group

  Defined · s 157

  “Multinational Enterprise Group” means any Group that includes at least one Entity or Permanent Establishment that is not located in the jurisdiction of the Ultimate Parent Entity; Finance (No. 2)

  Open s 157
• Non-profit Organisation

  Non-profit Organisation

  Defined · s 157

  “Non-profit Organisation” means an Entity that meets all of the following criteria: (a) it is established and operated in its jurisdiction of residence— (i) exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, or other similar purposes; or (ii) as a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare; (b) substantially all of the income from the activities mentioned in paragraph (a) is exempt from income tax in its jurisdiction of residence; (c) it has no shareholders or members who have a proprietary or beneficial interest in its income or assets; (d) the income or assets of the Entity may not be distributed to, or applied for the benefit of, a private person or non-charitable Entity other than— (i) pursuant to the conduct of the Entity’s charitable activities; (ii) as payment of reasonable compensation for services rendered or for the use of property or capital; or (iii) as payment representing the fair market value of property which the Entity has purchased; and (e) upon termination, liquidation or dissolution of the Entity, all of its assets must be distributed or revert to a Non-profit Organisation or to the government including any Governmental Entity of the Entity’s jurisdiction of residence or any political subdivision thereof, but does not include any Entity carrying on a trade or business which is not directly related to the purposes for which it was established;

  Open s 157
• Ownership Interest

  Ownership Interest

  Defined · s 157

  “Ownership Interest” means any equity interest that carries rights to the profits, capital or reserves of an Entity, including the profits, capital or reserves of a Main Entity’s Permanent Establishment;

  Open s 157
• Pension Fund

  Pension Fund

  Defined · s 157

  “Pension Fund” means— (a) an Entity that is established and operated in a jurisdiction exclusively or almost exclusively to administer or provide retirement benefits and ancillary or incidental benefits to persons and regulated as such by that jurisdiction or one of its political subdivisions or local authorities or those benefits are secured or otherwise protected by national regulations and funded by a pool of assets held through a fiduciary arrangement or trustor to secure the fulfilment of the corresponding pension obligations against a case of insolvency of the Multinational Enterprise Group; or (b) a Pension Services Entity;

  Open s 157
• Permanent Establishment

  Permanent Establishment

  Defined · s 157

  “Permanent Establishment” means— (a) a place of business including a deemed place of business situated in a jurisdiction and treated as a permanent establishment in accordance with an applicable Tax Treaty in force provided that such jurisdiction taxes the income attributable to it in accordance with a provision similar to Article 7 of the OECD Model Tax Convention; (b) if there is no applicable Tax Treaty in force, a place of business including a deemed place of business in respect of which a jurisdiction taxes under its domestic law the income attributable to such place of business on a net basis similar to the manner in which it taxes its own tax residents; (c) if a jurisdiction has no corporate income tax system, a place of business including a deemed place of business situated in that jurisdiction that would be treated as a permanent establishment in accordance Finance (No. 2) with the OECD Model Tax Convention provided that such jurisdiction would have had the right to tax the income attributable to it in accordance with Article 7 of that model; or (d) a place of business or a deemed place of business that is not already described in paragraphs (a) to (c) through which operations are conducted outside the jurisdiction where the Entity is located provided that such jurisdiction exempts the income attributable to such operations;

  Open s 157
• Tax

  Tax

  Defined · s 157

  “Tax” means a compulsory unrequited payment to General Government;

  Open s 157
• Ultimate Parent Entity

  Ultimate Parent Entity

  Defined · s 157

  “Ultimate Parent Entity” means either— (a) an Entity that— (i) owns directly or indirectly a Controlling Interest in any other Entity; and (ii) is not owned, with a Controlling Interest, directly or indirectly by another Entity; or (b) the Main Entity of a Group that is located in one jurisdiction and has one or more Permanent Establishments located in other jurisdictions provided that the Entity is not a part of another Group;

  Open s 157
• Ultimate Parent Entity Jurisdiction

  Ultimate Parent Entity Jurisdiction

  Defined · s 157

  “Ultimate Parent Entity Jurisdiction” means the jurisdiction where the Ultimate Parent Entity is located. (2) An Entity is a Flow-through Entity to the extent it is fiscally transparent with respect to its income, expenditure, profit or loss in the jurisdiction where it was created unless it is tax resident and subject to a Covered Tax on its income or profit in another jurisdiction. (3) A Flow-through Entity is a Tax Transparent Entity with respect to its income, expenditure, profit or loss to the extent that it is fiscally transparent in the jurisdiction in which its owner is located. (4) A Flow-through Entity is a Reverse Hybrid Entity with respect to its income, expenditure, profit or loss to the extent that it is not fiscally transparent in the jurisdiction in which the owner is located. (5) An Entity is treated as fiscally transparent under the laws of a jurisdiction, if that jurisdiction treats the income, expenditure, profit or loss of that Entity as if it were derived or incurred by the direct owner of that Entity in proportion to its interest in that Entity. (6) An Ownership Interest in an Entity or a Permanent Establishment that is a Constituent Entity shall be treated as held through a Tax Transparent Structure if that Ownership Interest is held indirectly through a chain of Tax Transparent Entities. (7) A Constituent Entity that is not a tax resident and not subject to a Covered Tax or a Qualified Domestic Top-up Tax based on its place of management, place of creation, or similar criteria shall be treated as a Flow-through Entity and a Tax Transparent Entity in respect of its income, expenditure, profit or loss to the extent that— (a) its owners are located in a jurisdiction that treats the Entity as fiscally transparent; (b) it does not have a place of business in the jurisdiction where it was created; and (c) the income, expenditure, profit or loss is not attributable to a Permanent Establishment. (8) An Entity that is treated as a separate taxable person for income tax purposes in the jurisdiction where it is located is a Hybrid Entity with respect to its income, expenditure, profit or loss to the extent that it is fiscally transparent in the jurisdiction in which its owner is located. (9) The location of an Entity that is not a Flow-through Entity is determined in the following manner: (a) if it is a tax resident in a jurisdiction based on its place of management, place of creation or similar criteria, it is located in that jurisdiction; and (b) in other cases, it is located in the jurisdiction in which it was created. (10) The location of an Entity that is a Flow-through Entity is determined in the following manner: (a) if it is the Ultimate Parent Entity of the Multinational Enterprise Group or it is required to apply an Income Inclusion Rule in accordance with section 161, it is located in the jurisdiction where it was created; and Finance (No. 2) (b) in other cases, it shall be treated as a stateless Entity. (11) The location of a Permanent Establishment is determined in the following manner: (a) if it is described in paragraph (1)(a) of the definition of “Permanent Establishment”, it is located in the jurisdiction where it is treated as a permanent establishment and is taxed under the applicable Tax Treaty in force; (b) if it is described in paragraph (1)(b) of the definition of “Permanent Establishment”, it is located in the jurisdiction where it is subject to net basis taxation based on its business presence; (c) if it is described in paragraph (1)(c) of the definition of “Permanent Establishment”, it is located in the jurisdiction where it is situated; and (d) if it is described in paragraph (1)(d) of the definition of “Permanent Establishment”, it is considered as a stateless Permanent Establishment. (12) Where by reason of subsection (9), a Constituent Entity is located in more than one jurisdiction, then its status for the purposes of this Part shall be determined in the following manner: (a) if it is located in two jurisdictions that have an applicable Tax Treaty in force— (i) it shall be located in the jurisdiction where it is considered as a deemed resident for the purposes of the Tax Treaty; (ii) if the Tax Treaty requires the competent authorities to reach a mutual agreement on the deemed residence of the Constituent Entity for the purposes of the Tax Treaty and no agreement exists, then paragraph (b) shall apply; (iii) if the Tax Treaty does not provide relief or exemption from tax because the Constituent Entity is a tax resident of both Contracting Parties, then paragraph (b) shall apply; (b) if no Tax Treaty applies, then its location shall be determined in the following manner: (i) it shall be located in the jurisdiction where it paid the greater amount of Covered Taxes for the Financial Year, without considering the ones paid in accordance with a Controlled Foreign Company Tax Regime; (ii) if the amount of Covered Taxes paid in both jurisdictions is the same or zero, it shall be located in the jurisdiction where it has the greater amount of Substance-based Income Exclusion computed on an entity basis in accordance with section 180; (iii) if the amount of the Substance-based Income Exclusion in both jurisdictions is the same or zero, then it is considered a Stateless Constituent Entity unless it is the Ultimate Parent Entity of the Multinational Enterprise Group in which case it shall be located in the jurisdiction where it was created. (13) Where, under subsection (12), a Constituent Entity that is located in more than one jurisdiction is a Parent Entity located in a jurisdiction where it is not subject to a Qualified Income Inclusion Rule, then the other jurisdiction can require such Entity to apply its Qualified Income Inclusion Rule unless it is restricted by an applicable Tax Treaty in force. (14) Where an Entity has changed its location during the Financial Year, it shall be located in the jurisdiction where it was located at the beginning of that year. Finance (No. 2)

  Open s 157