Article 37 - Allocation of Covered Taxes from One CE to Another

Covered taxes of one CE are allocated to another CE as follows:

1. Regarding Covered Taxes on income attributable to a PE, the following must be considered:

   1. No amount of Covered Taxes recorded in the Financial Accounts of the Main Entity may be allocated to a PE located in the State, provided that the Main Entity is located outside the State and those taxes were imposed by another jurisdiction.

   2. No amount of Covered Taxes recorded in the Financial Accounts of a Main Entity located in the State and allocated to a PE located outside the State shall be allocated to that Main Entity.

2. Any amount of Covered Taxes recorded in the Financial Accounts of a Tax Transparent Entity, related to GloBE income or loss allocated to a CE-Owner, must be allocated to that CE-Owner in accordance with clause (2) of paragraph 1 of Article 32 of these ERs, after allocating to any PE, and based on their Ownership Interest.

3. No amount of Covered Taxes recorded in the Financial Accounts of a CE-Owner located outside the country may be allocated to another CE located within the State, in cases where the Covered Taxes arise from a CFC Tax Regime.

4. In the case of a CE that is a Hybrid Entity and is located within the State, no amount of Covered Taxes recorded in the Financial Accounts of a CE-Owner located outside the State, and imposed on the income of the Hybrid Entity, may be allocated to that Hybrid Entity located in the State.

5. No amount of Covered Taxes payable outside the country on distributions or deemed distributions made by a CE located in the State to a CE-Owner located outside the State may be allocated to the distributing CE located in the State.

The provisions of the preceding paragraph of this Article apply to the allocation of Covered Taxes related to PEs, Tax-Transparent Entities and Hybrid Entities, in addition to the allocation of taxes from CFC regimes and taxes imposed on distributions from one CE to another.

Covered taxes allocated to a CE under clauses (3) and (4) of the first paragraph of this Article, with respect to passive income, are included in the Adjusted Covered Taxes of that CE in an amount equal to the lesser of: