At the election of the filing constituent entity, the qualifying income or loss of a constituent entity located in a jurisdiction arising from the disposal of immovable property located in that jurisdiction by such constituent entity to third parties for a fiscal year may be adjusted in the following manner.

The net gain arising from the disposal of immovable property as referred to in the first subparagraph in the fiscal year in which the election is made shall be offset against any net loss arising from the disposal of immovable property as referred to in the first subparagraph in the fiscal year in which the election is made and in the four fiscal years prior to that fiscal year (the “five-year period”). The net gain shall be offset first against the net loss, if any, that has arisen in the earliest fiscal year of the five-year period. Any residual amount of net gain shall be carried forward and offsetagainst any net losses that have arisen in subsequent fiscal years of the five-year period.

Any residual amount of net gain that remains after applying the second subparagraph shall be spread evenly over the five-year period for the computation of the qualifying income or loss of each constituent entity in that jurisdiction that has made a net gain from the disposal of immovable property as referred to in the first subparagraph in the fiscal year in which the election is made. The residual amount of net gain allocated to a constituent entity shall be an amount equal to the net gain of that constituent entity divided by the net gain of all constituent entities.

Where no constituent entity in a jurisdiction has made a net gain from the disposal of immovable property as referred to in the first subparagraph in the fiscal year in which the election is made, the residual amount of net gain as referred to in the third subparagraph shall be allocated equally to each constituent entity in that jurisdiction and spread evenly over the five-year period for the computation of the qualifying income or loss of each of those constituent entities.

Any gain or loss for the fiscal years preceding the election year shall be subject to adjustments in accordance with Article 28, Paragraph 1 of the Directive. The election shall be made annually in accordance with Article 43, Paragraph 2 of the Directive.

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