3‑255 Constituent Entity that is a Flow‑3‑255 Constituent Entity that is a Flow‑through Entity—Financial Accounting Net Income or Loss

3‑255 Constituent Entity that is a Flow‑through Entity—Financial Accounting Net Income or Loss

(1) If a Constituent Entity of a Group is a Flow‑through Entity, deal with its Financial Accounting Net Income or Loss as follows: (a) first, reduce the amount of that Financial Accounting Net Income or Loss by the amount attributable to its owners that: (i) are not Group Entities of the Group; and (ii) hold a Direct Ownership Interest in the Flow‑through Entity, or hold an Indirect Ownership Interest in the Flow‑through Entity through a Tax Transparent Structure; (b) next, if there is a Permanent Establishment through which the business of the Flow‑through Entity is wholly or partly carried out, allocate the remaining Financial Accounting Net Income or Loss to the Permanent Establishment to the extent set out in Part 3‑4; (c) next, if the Flow‑through Entity is a Tax Transparent Entity that is not the Ultimate Parent Entity of the Group, allocate the remaining Financial Accounting Net Income or Loss to the Flow‑through Entity’s Constituent Entity‑owners in proportion with their respective rights to a share of the profits of the Flow‑through Entity carried by Ownership Interests that they hold; (d) next, if the Flow‑through Entity is a Tax Transparent Entity that: (i) is the Ultimate Parent Entity of the Group; or (ii) would be the Ultimate Parent Entity of the Group if any Controlling Interest in the Tax Transparent Entity held by an Excluded Entity were disregarded; or (iii) is a Reverse Hybrid Entity; allocate the remaining Financial Accounting Net Income or Loss to the Flow‑through Entity. (2) Despite paragraph (1)(a): (a) do not make the reduction in that paragraph if the Flow‑through Entity is the Ultimate Parent Entity of the Group; and (b) do not make the reduction in that paragraph to the extent that the Flow‑through Entity is owned by the Ultimate Parent Entity of the Group (directly or through a Tax Transparent Structure).

Note: See Part 7‑1 for the rules dealing with an Ultimate Parent Entity that is a Flow‑through Entity.

(3) To avoid doubt, if an amount of the Financial Accounting Net Income or Loss of the Flow‑through Entity is allocated to another Constituent Entity under subsection (1), the Financial Accounting Net Income or Loss of the Flow‑through Entity is reduced by that amount. (4) Subsection (1) applies separately with respect to each Ownership Interest in the Flow‑through Entity.

Chapter 4—Computation of Adjusted Covered Taxes