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The tax-paid deeming rules only apply to attributable taxpayers in respect of first-tier FIF interests. Where an attributable taxpayer has an interest in a FIF that in turn has an interest in another FIF, or an attributable taxpayer has an interest in a CFC that in turn has a FIF interest, the tax paid by the second-tier FIF does not come within the scope of the tax-paid deeming rules that apply to attributable taxpayers.
Specifically, this is because the tax-paid condition only applies to foreign income tax actually paid by the first-tier FIF or CFC, not any foreign income tax paid by the second tier FIF. This is the case even though the notional income of the first tier FIF or CFC may include an amount in its notional income or notional assessable income that relates to its interest in the second tier FIF and the attributable taxpayer in turn includes the relevant attributed income amount that relates to the second tier FIF interest in its assessable income under sections 529 or 456.
A co has a 100% interest in a CFC, which in turns holds a 30% interest in a FIF. In working out the CFC's attributed income, $1m is included in its notional assessable income for income attributable to its FIF interest, worked out under the calculation method. Foreign income tax of $100,000 is paid by the FIF but the CFC pays no foreign income tax.
As A co is the attributable taxpayer in relation to the CFC and an amount is included in its assessable income under section 456, it is only the tax paid by the CFC on its notional assessable income for the statutory accounting period that A co is deemed to have paid. As the foreign income tax of $100,000 is paid by the FIF, none of it is deemed to have been paid by A co.
Last modified: 23 Jul 2009QC 22894