Article 10 - Allocation of Financial Accounting Net Income or Loss: Main Entity and Permanent Establishment

Subject to the provisions of Paragraphs C and D of this Article, where a Constituent Entity is a Permanent Establishment in accordance with Paragraph A, B or C of the definition of Permanent Establishment included in Article 1 of the Law, the Financial Accounting Net Income or Loss of the Permanent Establishment shall be the net income or loss reflected in the separate financial accounts of that Permanent Establishment.

Where the Permanent Establishment does not have separate financial accounts, its Financial Accounting Net Income or Loss shall be the amount that would have been reflected in its separate financial accounts if they had been prepared on a standalone basis and in accordance with the accounting standard used in the preparation of the Consolidated Financial Statements of the Ultimate Parent Entity of the Multinational Enterprise Group.

The Financial Accounting Net Income or Loss of a Permanent Establishment to which Paragraphs A and B of the definition of Permanent Establishment included in Article 1 of the Law applies shall be adjusted to reflect only the amounts and items of income and expense that are attributable to it in accordance with the applicable Tax Treaty or domestic law of the jurisdiction where it is located, regardless of the amount of income subject to tax and the amount of tax deductible expenses in that jurisdiction.

The Financial Accounting Net Income or Loss of a Permanent Establishment to which Paragraph C of the definition of Permanent Establishment included in Article 1 of the Law applies shall be adjusted to reflect only the amounts and items of income and expense that are attributable to it in accordance with Article 7 of the Model Tax Convention.

Where a Constituent Entity is a Permanent Establishment in accordance with Paragraph D of the definition of Permanent Establishment included in Article 1 of the Law, the Financial Accounting Net Income or Loss of that Permanent Establishment shall be equal to income that is exempted from tax in the jurisdiction where the Main Entity is located due to being attributable to the operations conducted in the other jurisdiction. The Financial Accounting Net Income or Loss of the Permanent Establishment should be computed based on expenses that were not deducted for tax purposes in the jurisdiction where the Main Entity is located that are attributable to those operations.

The Financial Accounting Net Income or Loss of a Permanent Establishment shall not be taken into account in determining the Constituent Entity Income or Loss of the Main Entity.

Notwithstanding Paragraph F of this Article, where a Permanent Establishment derives a Constituent Entity Loss, such loss shall be treated as an expense of the Main Entity for the purposes of computing Constituent Entity Income or Loss of that Main Entity and not as an expense of that Permanent Establishment, to the extent that:

1. The loss of the Permanent Establishment is treated as an expense in the computation of the domestic taxable income of such Main Entity.

2. The loss is not set off against an item of income that is subject to tax under the laws of both the jurisdiction of the Main Entity and the jurisdiction of the Permanent Establishment.

Where Paragraph G of this Article applies, Constituent Entity Income subsequently derived by the Permanent Establishment shall be treated as Constituent Entity Income of the Main Entity and not of the Permanent Establishment for the purposes of determining its Constituent Entity Income or Loss up to the amount of the Constituent Entity Loss that was previously treated as an expense of the Main Entity.