1.  For the purpose of this Article, ‘reorganisation’ means a transformation or transfer of assets and liabilities in exchange for the issue of shares or, if applicable, another method of payment not exceeding 10 % of the nominal value of those shares, by the acquiring constituent entity or a person related with the acquiring constituent entity, where the gain or loss arising from the transfer is not taxed, in whole or in part, and where the acquiring constituent entity is required to use the historical value of the assets transferred, adjusted by any taxable gain or loss from the transfer to compute the taxable income after the transfer under local rules.

2.  A constituent entity that disposes of assets and liabilities (the “transferring entity”) shall include the gain or loss arising from such disposal in the computation of its qualifying income or loss.

A constituent entity that acquires assets and liabilities (the “acquiring entity”) shall determine its qualifying income or loss on the basis of its carrying value of the acquired assets and liabilities determined under the acceptable financial accounting standard of the ultimate parent entity.

3.  By way of derogation from paragraph 2, where a disposal or acquisition of assets and liabilities is performed in the context of a reorganisation:

(a)   the transferring entity shall exclude any gain or loss arising from such disposal from the computation of its qualifying income or loss; and

(b)   the acquiring entity shall determine its qualifying income or loss on the basis of the carrying value of the acquired assets and liabilities upon transfer.

4.  By way of derogation from paragraph 2 and 3, where the transfer of assets and liabilities is performed in the context of a reorganisation which results, for the transferring entity, in a taxable gain or loss:

(a)   the transferring entity shall include gain or loss arising from such disposal in the computation of its qualifying income or loss up to the portion of the gain that is subject to tax or up to the portion of the loss that reduces the taxable basis in the jurisdiction of the transferring entity; and

(b)   the acquiring entity shall determine its qualifying income or loss on the basis of the carrying value of the acquired assets and liabilities upon transfer reduced by the portion of the gain that is subject to tax or increased by the portion of the loss that reduces the taxable basis in the jurisdiction of the transferring entity.

5.  At the election of the filing constituent entity, where a constituent entity that is required or permitted to adjust the basis of its assets and the amount of its liabilities to fair value for tax purposes in the jurisdiction where it is located, such constituent entity may:

(a)     include, in the computation of its qualifying income or loss, an amount of gain or loss in respect of each of its assets and liabilities, which shall be equal to the difference between the carrying value for financial accounting purposes of the asset or liability immediately before the date of the event that triggered the tax adjustment (the “triggering event”) and the fair value of the asset or liability immediately after the triggering event;

(b)     use the fair value for financial accounting purposes of the asset or liability immediately after the triggering event to compute qualifying income or loss in the fiscal years following the triggering event;

(c)     include the net total of the amounts determined under (a) in the computation of the qualifying income or loss either by including the net total amounts in the fiscal year of the triggering event or by including one fifth of the net total of these amounts in the fiscal year of the triggering event and in the four following fiscal years.

The amount determined pursuant to point (a) shall be adjusted by any taxable gain or loss from the transfer to compute the taxable income after the transfer under local rules, if any, arising in connection with the triggering event.

If the constituent entity leaves the MNE group in a fiscal year before the full amount determined pursuant to point (a) has been included in the computation of its qualifying income or loss, the remaining amount shall be included in that fiscal year.

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