Taxes Consolidation Act 1997 section 111W

Equity investment inclusion election and qualified flow-through tax benefits of qualified ownership interests

Section 111W deals with the equity investment inclusion election, and the treatment of qualified flow-through tax benefits arising from qualified ownership interests in tax transparent entities.

• Where elected, a constituent entity must include in its qualifying income or loss the accounting gains, losses, impairments, and disposal outcomes relating to ownership interests that are not qualified ownership interests, along with all associated current and deferred tax expenses in its adjusted covered taxes.
• A "qualified ownership interest" is an equity investment in a tax transparent entity whose financials are not consolidated line-by-line into the MNE group's accounts, where the investor expects part of its return in the form of non-refundable tax credits and bears genuine economic risk of loss.
• Qualified flow-through tax benefits — comprising non-refundable tax credits and tax-deductible losses adjusted by the statutory tax rate — are added to the entity's adjusted covered taxes, while the investment is progressively reduced by credits, losses, distributions, and sale proceeds received, but never below zero.
• Where the proportional amortisation method of accounting is used (or irrevocably elected), receipts reduce the investment in proportion to the expected tax benefits ratio, and any excess amounts do not increase the entity's adjusted covered taxes.

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