Taxes Consolidation Act 1997 section 111I

Allocation of top-up tax under IIR

Section 111I sets out how to calculate the amount of IIR top-up tax a parent entity — being the ultimate parent entity (UPE), an intermediate parent entity (IPE), or a partially-owned parent entity (POPE), as the case may be — must pay in respect of a low-taxed constituent entity, based on the parent's ownership interest in that entity's qualifying income.

• The IIR top-up tax payable by a parent entity for a low-taxed constituent entity is calculated by multiplying the constituent entity's total top-up tax (per section 111AD) by the parent's allocable share of that tax for the fiscal year — that is, the proportion of the qualifying income of the low-taxed constituent entity attributable to ownership interests held by the parent, compared to the total qualifying income of that constituent entity.
• The allocable share is determined by taking the constituent entity's qualifying income, subtracting the portion attributable to other owners, and dividing by the constituent entity's total qualifying income — effectively reflecting the parent's proportionate ownership interest.
• The income attributable to other owners is worked out using the accounting principles of the ultimate parent entity's consolidated financial statements, assuming the constituent entity's net income equals its qualifying income and applying a series of hypothetical assumptions about consolidation and external ownership.
• Where the parent entity itself is also low-taxed, the IIR top-up tax due by the parent entity in relation to itself is the full amount of the top-up tax calculated for that parent entity, payable in addition to any amounts due in respect of its low-taxed constituent entities.

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