7‑5 Flow‑through Entity that is Ultimate7‑5 Flow‑through Entity that is Ultimate Parent Entity—reduce GloBE Income and Covered Taxes

7‑5 Flow‑through Entity that is Ultimate Parent Entity—reduce GloBE Income and Covered Taxes

(1) This section applies if: (a) the Ultimate Parent Entity of an MNE Group is a Flow‑through Entity; and (b) an amount (the attributable income) of the Ultimate Parent Entity’s GloBE Income for a Fiscal Year is attributable to a Direct Ownership Interest held by another Entity in the Ultimate Parent Entity. (2) Reduce the Ultimate Parent Entity’s GloBE Income for the Fiscal Year by the attributable income (but not below zero) if any of the following conditions are satisfied: (a) the holder of the Direct Ownership Interest is subject to Tax in respect of such income for a taxable period that ends within 12 months after the end of the Fiscal Year and the condition in subsection (3) is met; (b) the holder is an individual that: (i) is a tax resident in the jurisdiction in which the Ultimate Parent Entity is located; and (ii) holds Ownership Interests in the Ultimate Parent Entity that, in the aggregate, are a right to 5% or less of the profits and assets of the Ultimate Parent Entity; (c) the holder is a Governmental Entity, an International Organisation, a Non‑profit Organisation, or a Pension Fund that: (i) if the holder is a Governmental Entity—is a Governmental Entity of the jurisdiction in which the Ultimate Parent Entity is located; and (ii) if the holder is not a Governmental Entity—was created and is managed in the jurisdiction in which the Ultimate Parent Entity is located; and (iii) holds Ownership Interests in the Ultimate Parent Entity that, in the aggregate, are a right to 5% or less of the profits and assets of the Ultimate Parent Entity. (3) For the purposes of paragraph (2)(a), the condition in this subsection is met if: (a) the holder of the Ownership Interest is subject to Tax on the full amount of such income at a nominal rate that equals or exceeds the Minimum Rate; or (b) it can be reasonably expected that the sum of: (i) the Covered Taxes for the Fiscal Year payable by the Ultimate Parent Entity on the attributable income; and (ii) if one or more other Constituent Entities of the MNE Group are Tax Transparent Entities—the Covered Taxes for the Fiscal Year payable by the other Constituent Entities, to the extent (if any) that those Covered Taxes relate directly to the attributable income; and (iii) the Taxes payable by the holder of the Ownership Interest in respect of the attributable income; equals or exceeds the full amount of the attributable income multiplied by the Minimum Rate. (4) If an Ultimate Parent Entity’s GloBE Income for a Fiscal Year is reduced under subsection (2), reduce its Covered Taxes for the Fiscal Year as follows: (a) first, compute the amount by which: (i) the Ultimate Parent Entity’s GloBE Income for the Fiscal Year after the reduction; falls short of: (ii) the Ultimate Parent Entity’s GloBE Income for the Fiscal Year before the reduction; (b) next, compute the fraction that is: (i) that shortfall; divided by: (ii) the Ultimate Parent Entity’s GloBE Income for the Fiscal Year before the reduction; (c) next, multiply the Ultimate Parent Entity’s Covered Taxes for the Fiscal Year by that fraction. The result of paragraph (c) is the amount of the reduction under this subsection of the Ultimate Parent Entity’s Covered Taxes for the Fiscal Year.