Instructions For Schedule H (Form 1120-F) - 2009 printable pdf download

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Department of the Treasury

Internal Revenue Service

Instructions for Schedule H

(Form 1120-F)

Deductions Allocated to Effectively Connected Income Under Regulations Section

1.861-8

Section references are to the Internal

Pricing Guidelines principles applied

Purpose of Schedule

Revenue Code unless otherwise noted.

by analogy (e.g., see Article 7 and the

Schedule H (Form 1120-F) is used by

accompanying Exchange of Notes to

a foreign corporation that files Form

the 2001 United States-United

General Instructions

1120-F to report the amount of the

Kingdom and 2003 United

foreign corporation’s deductible

States-Japan Income Tax Treaties).

Regulations section 1.861-8.

expenses that are allocated and

See the instructions for Schedule M-3

Under section 882(c), a foreign

apportioned under Regulations

(Form 1120-F) for the reporting of

corporation’s expenses are

sections 1.861-8 and 1.861-17 and

book-tax differences in Parts II and III

deductible against its U.S. taxable

Temporary Regulations section

of that schedule under a treaty-based

income only if they are connected

1.861-8T between ECI and non-ECI.

return position pursuant to the OECD

with income effectively connected

The results reported on Schedule H

Transfer Pricing Guidelines

with the conduct of a trade or

are included on Form 1120-F, Section

principles.

business in the United States (“ECI”).

II, line 26; and, for banks only, on

The proper allocation and

Schedule M-3 (Form 1120-F), Part III,

apportionment of deductions for this

line 31.

Specific Instructions

purpose is generally determined

under the provisions of Regulations

Who Must File

section 1.861-8 and Temporary

Part I – Home Office

Any foreign corporation that is

Regulations section 1.861-8T, with

required to file Form 1120-F and is

special rules for the allocation and

Deductible Expenses

(or is treated as) engaged in a trade

apportionment of research and

Definitely Related Solely

or business within the United States

experimentation expenses at

at any time during the tax year must

Regulations section 1.861-17. Under

to ECI or Non-ECI

complete Schedule H and attach it to

these regulations, a taxpayer must

Part I is used to identify the total

its Form 1120-F.

allocate deductions to the class of

expenses, including interest expense

gross income to which the deduction

Protective returns. If the foreign

and bad debt expense, recorded on

is definitely related and then, if

corporation files a protective Form

the corporation’s home office books;

necessary, apportion deductions

1120-F under Regulations section

to report adjustments made to

among the groups of income included

1.882-4(a)(3)(vi), Schedule H need

determine the amounts that are

not be completed or attached to the

in the class. Generally, deductions

deductible for U.S. tax purposes; and

protective Form 1120-F.

are allocated and apportioned on the

to report the portion of the adjusted

basis of the factual relationship

Treaty-based return reporting of

expenses that are definitely related to

between the deduction and gross

business profits attributable to a

ECI and non-ECI. To the extent

income. (Under section 882(c)(1)(B),

U.S. permanent establishment. Do

included in the home office records

charitable contributions that are

not complete Schedule H if the

used to report total home office

deductible under section 170 reduce

corporation files Form 1120-F

expenses, interest expense and bad

ECI whether or not connected with

pursuant to an income tax treaty to

debt expense are also identified on

such income.) Use Schedule H (Form

report business profits attributable to

Schedule H and removed from

1120-F) to report expenses, other

a U.S. permanent establishment and

expenses allocated and apportioned

than interest expense and bad debt

applies OECD Transfer Pricing

under Regulations sections 1.861-8

expense, allocated and apportioned

Guidelines principles in lieu of the

and 1.861-17 and Temporary

to ECI and non-ECI. Interest expense

ECI and expense allocation and

Regulations section 1.861-8T.

of a foreign corporation is allocated to

apportionment rules of section 882(c)

Deductions reported on home office

ECI exclusively (except to the extent

and Regulations sections 1.861-8 and

books may include expenses incurred

provided in certain tax treaties) under

1.861-17 and Temporary Regulations

outside the foreign corporation’s

the rules provided in Regulations

section 1.861-8T. This treaty-based

home country (other than in the

section 1.882-5 and is reported on

reporting is permitted only if the

United States). Home office

Schedule I (Form 1120-F). See

applicable income tax treaty and

deductions do not include deductions

Regulations section 1.882-5(a)(2).

accompanying documents (such as

that are reported on books and

Bad debt expense allocated to ECI is

Exchange of Notes) expressly

records used to complete Form

reported directly on Form 1120-F,

provide that attribution of profits is

1120-F, Schedule L (“Schedule L

Section II, line 15.

determined under the OECD Transfer

books”). Schedule L books are the

Cat. No. 50605P

Instructions For Schedule H (Form 1120-F) - 2009

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