(1)The substance based income exclusion for a period for a territory is calculated by taking the following steps—
Step 1
Determine the payroll carve-out amount for that period for each standard member of the group in that territory.
Step 2
Determine the tangible asset carve-out amount for that period for each standard member of the group in that territory.
Step 3
Add together the amounts determined at steps 1 and 2.
(2)But if the filing member for the group elects not to calculate the substance based income exclusion for the period, the exclusion is nil.
(3)Paragraph 2 of Schedule 15 (annual elections) applies to an election under subsection (2).
(4)The payroll carve-out amount for a member is 5% of the eligible payroll costs incurred by the member in the period.
(5)The tangible asset carve-out amount for a member is 5% of the eligible tangible asset amount of the member in the period.
(6)Section 196 sets out how to calculate the eligible payroll costs of a member.
(7)Section 197 sets out how to calculate the eligible tangible asset amount of a member.
(8)Section 198 sets out special rules on calculating the eligible payroll costs and eligible tangible asset amount of a member that is a permanent establishment or a flow-through entity.