Article 11 - Allocation of Financial Accounting Net Income or Loss: Flow-through Entity

The Financial Accounting Net Income or Loss of a Constituent Entity that is a Flow-through Entity shall be reduced by the amount allocable to its owners that are not members of the Multinational Enterprise Group and that hold their Ownership Interest in that Flow-through Entity either directly or indirectly through one or more Tax Transparent Entities.

Paragraph A of this Article shall not apply to any of the following:

1. An Ultimate Parent Entity that is a Flow-through Entity.

2. The Flow-through Entity that is owned by an Ultimate Parent Entity that is also a Flow-through Entity, either directly or indirectly through one or more Tax Transparent Entities.

Where a Flow-through Entity wholly or partially carries out business through a Permanent Establishment, its Financial Accounting Net Income or Loss after the reduction of the amount calculated in accordance with Paragraph A of this Article shall be allocated to that Permanent Establishment in accordance with Article 10 of these Regulations.

Where a Flow-through Entity is a Tax Transparent Entity that is not an Ultimate Parent Entity, any Financial Accounting Net Income or Loss after the reduction of the amount calculated in accordance with Paragraph A or C of this Article shall be allocated to its Constituent Entity-owners in proportion to their Ownership Interests that carry rights to profits in the Flow-through Entity.

For the purposes of Paragraph D of this Article, where a Flow-through Entity is owned by another Flow-through Entity, the Constituent Entity-owner shall be the next entity in the ownership chain that is not a Flow-through Entity or where there is no such Entity the owner shall be the Flow-through Entity which is the Ultimate Parent Entity.

Where a Flow-through Entity is a Tax Transparent Entity that is an Ultimate Parent Entity, any Financial Accounting Net Income or Loss of the Flow-through Entity after the reduction of the amount calculated in accordance with Paragraph A or C of this Article shall be allocated to the Ultimate Parent Entity.

Where a Flow-through Entity is a Reverse Hybrid Entity, any Financial Accounting Net Income or Loss of the Flow-through Entity after the reduction of the amount calculated in accordance with Paragraph A or C of this Article shall be allocated to the Reverse Hybrid Entity.

Paragraphs C, D, E, F and G of this Article shall be applied separately with respect to each Ownership Interest that carries rights to profits in the Flow-through Entity.

The Financial Accounting Net Income or Loss of a Constituent Entity that is a Flow-through Entity shall be reduced by the amount that is allocated to another Constituent Entity.

For the purposes of Paragraph G of this Article, a Flow-through Entity is a Reverse Hybrid Entity if the tax laws of the jurisdiction in which the owner is located does not treat the Entity as fiscally transparent. Where the owner is a Flow-through Entity, that is not a Flow-through Ultimate Parent Entity, such Entity shall not be considered the owner and instead the next owner further up the ownership chain that is not a Flow-through Entity shall be considered the owner for the purposes of determining whether a Flow-through Entity is a Reverse Hybrid except where there is no such Entity in which case the owner shall be the Flow-through Ultimate Parent Entity.