Instructions For Schedule I (Form 1120-F) - 2017 (Page 7 of 10) in pdf

Lines 14a Through 15.

Section III, line 8. This amount plus

line 8, column (c). See Regulations

line 22 is the corporation’s tentative

section 1.882-5(d)(5)(ii).

Computation of AUSBL Method

branch interest for purposes of the

Allocation Under the

Line 10e. If the amount on line 10b is

branch level interest tax under

zero and the foreign corporation does

Scale-Down Ratio

Regulations section 1.884-4(b). See the

not properly make or is not eligible to

instructions for Form 1120-F, Section III,

If U.S.-connected liabilities on line 7c

make the 30-day LIBOR election, enter

Part II, line 8.

are equal to or less than U.S.-booked

on line 10e an interest rate that is

liabilities on line 8, column (c), the

reasonable under the facts and

Lines 10 Through 15. Step

AUSBL method allocation is subject to a

circumstances. One reasonable

3: Adjusted U.S.-Booked

“scale-down” of the U.S.-booked

approach in determining such interest

interest expense reported on line 9,

Liabilities Method

rate would include using an interest rate

column (c). Complete lines 14a and 14b

that:

If the amount on line 7c exceeds the

in lieu of lines 10 through 13. If line 7c

Approximates the foreign

amount on line 8, column (c), the

exceeds line 8, column (c), leave lines

corporation's actual average U.S.-dollar

corporation has “excess interest” as

14a and 14b blank.

borrowing rate with respect to

defined in section 884(f)(1)(B).

Line 14b. Scaled-down U.S. book in-

interest-bearing U.S.-dollar

Complete lines 10 through 13, and skip

terest. Multiply the amount of U.S.

denominated liabilities and

lines 14a and 14b. If the amount on

booked interest on line 9, column (c), by

Is consistently applied by the foreign

line 7c is less than or equal to the

the scale-down ratio on line 14a, and

corporation from year to year.

amount on line 8, column (c), skip lines

enter the result on line 14b. The

10 through 13, and complete the

Examples of interest rates that would

allocated amount is the total amount of

determination of the scaling ratio on

generally be considered reasonable

the AUSBL method allocation under

lines 14a and 14b.

include the actual average interest rate

Regulations section 1.882-5(d)(4). The

Lines 10 Through 13.

on interest-bearing U.S.-dollar

amount on line 14b does not include

denominated liabilities that are

Computation of AUSBL Method

any amount directly allocable to ECI

U.S.-booked liabilities or an average

under Regulations section 1.882-5(a)(1)

Allocation with Excess Interest

arm's length rate of interest that would

(ii).

be charged to the foreign corporation on

Line 10. 30-day LIBOR election for

Hedging amounts. If the

its interest-bearing U.S.-dollar

banks. If the corporation is a foreign

corporation has income, expense, gain,

denominated liabilities. A U.S.-dollar

bank that elects to compute excess

or loss from a hedging transaction of a

borrowing rate of zero would generally

interest under the AUSBL method using

U.S.-booked liability that gives rise to

not be considered reasonable.

a published 30-day LIBOR for the tax

interest expense subject to the

year, check the box on line 10 and skip

If the rules set forth above apply to

scale-down ratio, such hedging income,

lines 10a through 10c. Enter the

the foreign corporation, attach a

expense, gain, or loss amount is also

published 30-day LIBOR on line 10d.

statement to Schedule I (Form 1120-F)

subject to reduction under the same

See Regulations section 1.882-5(d)(5)

explaining how the interest rate entered

scaling ratio reported on line 14a. See

(ii)(B) for additional information. The

on line 10e was derived.

Regulations section 1.882-5(d)(4) and

30-day LIBOR election does not apply

Proposed Regulations section

Line 12. Excess interest. Multiply the

to corporations other than foreign

1.882-5(d)(2)(vi). Do not report such

rate on line 10e by the amount of

banks. For this purpose, the corporation

scale-down reductions of hedging

excess U.S.-connected liabilities on

is eligible to make the 30-day LIBOR

income, expense, gains, or losses

line 11 and enter the result on line 12.

election under the same standard that

on line 14b. The ratio reported on

This amount is the corporation's excess

qualifies the corporation as a bank

line 14a shall be applied to each type of

interest expense portion of its overall

eligible to make the 95% fixed ratio

item in accordance with its

Regulations section 1.882-5 allocation

election in Regulations section

characterization and the scaled down

that is allocable to effectively connected

1.882-5(c)(4). The 30-day LIBOR

hedging income, expense, gain, or loss

income under the AUSBL method in

election is an annual election.

is reported on Form 1120-F, Section II in

Regulations section 1.882-5(d)(5). The

Lines 10a Through 10c. Excess

the appropriate category to which the

amount on line 12 also constitutes the

Interest – Average Actual U.S.

hedging item is characterized. For

corporation's excess interest under

instance, periodic expense from an

Dollar Rate

section 884(f)(1)(B). See Regulations

interest rate notional principal contract

section 1.884-4(a)(2).

Line 10a. Actual U.S. dollar interest.

hedging transaction that is recorded on

Line 13. Interest expense allocation.

If the corporation does not properly

the sets of books reportable on

Add the amount reported on line 12 and

make or is not eligible to make a 30-day

Schedule L, and that is subject to the

the amount of U.S.-booked interest

LIBOR election for the tax year, enter

scaling ratio, is reported on Form

expense from line 9, column (c) and

the interest expense paid or accrued by

1120-F, Section II, line 27. Such amount

enter the result on line 13. This amount

the corporation for the tax year on its

is also subject to reporting on

is the corporation's total amount of

average worldwide U.S. dollar liabilities,

Schedule H (Form 1120-F), line 38a, as

interest expense allocable under the

excluding U.S.-booked liabilities

allocable in part to ECI and in part to

three-step formula when

included on line 8, column (c).

non-ECI in accordance with the scaling

U.S.-connected liabilities exceed

ratio of line 14a.

Line 10b. Enter on line 10b, the

U.S.-booked liabilities under the AUSBL

average worldwide U.S. dollar

method. It does not include any

denominated liabilities (whether or not

amounts directly allocable to effectively

interest bearing) that are not

connected income under Regulations

U.S.-booked liabilities included on

section 1.882-5(a)(1)(ii).

-7-

Instructions For Schedule I (Form 1120-F) - 2017 Page 7

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