Taxes Consolidation Act 1997 section 111Z

Specific allocation of covered taxes incurred by certain types of constituent entities

Section 111Z sets out how covered taxes are allocated to and from certain types of constituent entities, including permanent establishments, tax transparent entities, hybrid entities, and entities subject to controlled foreign company (CFC) rules.

• A permanent establishment is allocated covered taxes from its parent entity's accounts that relate to the permanent establishment's qualifying income or loss, and a constituent entity-owner is allocated covered taxes from a tax transparent entity that relate to its share of income or loss.
• Under CFC rules, a constituent entity is allocated covered taxes from its direct or indirect owners' accounts; similarly, a hybrid or reverse hybrid entity is allocated covered taxes from its owner's accounts relating to its qualifying income.
• For passive income (dividends, interest, rent, royalties, annuities, and related gains), allocated covered taxes are capped at the lesser of the actual taxes allocated or the product of the jurisdiction's top-up tax percentage and the passive income amount.
• An election can be made to exclude deferred tax expenses that would otherwise be allocated from entities in a jurisdiction to other entities, removing them from the adjusted covered taxes of all constituent entities.

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