A constituent entity that is an investment entity is treated as a tax transparent entity for the purposes of this Part where the constituent entity‑owner is subject to tax in the jurisdiction in which it is located under a fair market value or similar regime based on annual changes in the fair value of its ownership interest, and the tax rate applicable to those annual changes equals or exceeds the minimum tax rate. An entity that indirectly owns an interest in an investment entity through a direct interest in another investment entity is considered subject to a fair market value or similar regime with respect to its indirect interest if it is subject to such a regime with respect to its direct interest in the intermediate investment entity. The election is made in accordance with section 111AAAD.

Where the election is withdrawn, any gain or loss from the disposal of an asset or liability held by the investment entity is determined on the basis of the fair market value of the asset or liability on the first day of the fiscal year in which the withdrawal is made.