For any attribute, use the base URI of the element.

<link href='mystuff.xml'/>

For any text content, use the base URI of the parent element.

<link>mystuff.xml</link>

For xml:base, use the base URI of the parent element.

<p xml:base="http://www.example.com">

A <a xml:base="/bingo/" href='stuff.xml'>link</a>
</p>

In the first case, the base URI of 'p' is used but not needed.

In the second case, the base URI of 'a' is used--which was inherited from 'p'.