Instructions For Schedule I (Form 1120-F) - 2009 (Page 6 of 8) in pdf

with respect to interest-bearing

Hedging amounts. If the corporation

Lines 10 Through 15. Step

U.S.-dollar denominated liabilities and

has income, expense, gain, or loss from a

•

3: Adjusted U.S. Booked

Is consistently applied by the foreign

hedging transaction of a U.S. booked

corporation from year to year.

liability that gives rise to interest expense

Liabilities Method

subject to the scale-down ratio, such

Examples of interest rates that would

If the amount on line 7c exceeds the

hedging income, expense, gain, or loss

generally be considered reasonable

amount on line 8, column (c), the

amount is also subject to reduction under

include the actual average interest rate on

corporation has “excess interest” as

the same scaling ratio reported on line

interest-bearing U.S.-dollar denominated

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

14a. See Regulations section

liabilities that are U.S.-booked liabilities or

lines 10 through 13, and skip lines 14a

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

an average arm’s length rate of interest

and 14b. If the amount on line 7c is less

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

that would be charged to the foreign

than or equal to the amount on line 8,

such scale-down reductions of

corporation on its interest-bearing

column (c), skip lines 10 through 13, and

hedging income, expense, gains, or

U.S.-dollar denominated liabilities. A

complete the determination of the scaling

losses on line 14b. The ratio reported on

U.S.-dollar borrowing rate of zero would

ratio on lines 14a and 14b.

line 14a shall be applied to each type of

generally not be considered reasonable.

item in accordance with its

Lines 10 Through 13.

If the rules set forth above apply to the

characterization and the scaled down

Computation of AUSBL Method

foreign corporation, attach a statement to

hedging income, expense, gain, or loss is

Allocation with Excess Interest

Schedule I (Form 1120-F) explaining how

reported on Form 1120-F, Section II in the

the interest rate entered on line 10e was

appropriate category to which the hedging

Line 10. 30-day LIBOR election for

derived.

item is characterized. For instance,

banks. If the corporation is a foreign

periodic expense from an interest rate

Line 12. Excess interest. Multiply the

bank that elects to compute excess

notional principal contract hedging

rate on line 10e by the amount of excess

interest under the AUSBL method using

transaction that is recorded on the sets of

U.S.-connected liabilities on line 11 and

the 30-day published U.S. dollar LIBOR

books reportable on Schedule L, and that

enter the result on line 12. This amount is

for the tax year, check the box on line 10

is subject to the scaling ratio, is reported

the corporation’s excess interest expense

and skip lines 10a through 10c. Enter the

on Form 1120-F, Section II, line 27. Such

portion of its overall Regulations section

published 30-day U.S. dollar LIBOR on

amount is also subject to reporting on

1.882-5 allocation that is allocable to

line 10d. See Regulations section

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

effectively connected income under the

1.882-5(d)(5)(ii)(B) for additional

AUSBL method in Regulations section

allocable in part to ECI and in part to

information. The 30-day LIBOR election

1.882-5(d)(5). The amount on line 12 also

non-ECI in accordance with the scaling

does not apply to corporations other than

constitutes the corporation’s excess

foreign banks. For this purpose, the

ratio of this line 14b.

interest under section 884(f)(1)(B). See

corporation is eligible to make the 30-day

Regulations section 1.884-4(a)(2).

U.S. dollar LIBOR election under the

Lines 16 Through 20. Step

same standard that qualifies the

Line 13. Interest expense allocation.

corporation as a bank eligible to make the

3: Separate Currency

Add the amount reported on line 12 and

95% fixed ratio election in Regulations

the amount of U.S. book interest expense

Pools Method

section 1.882-5(c)(4). If a protective

from line 9, column (c) and enter the

return is filed, see the instructions for

Corporations that allocate interest

result on line 13. This amount is the

making a protective 30-day LIBOR

expense under a Separate Currency

corporation’s total amount of interest

election on Schedule I filed with the

Pools election report the allocations under

expense allocable under the three-step

protective return.

a three-step method for each currency in

formula when U.S.-connected liabilities

which the corporation has U.S. assets (as

exceed U.S. booked liabilities under the

Lines 10a Through 10c. Excess

defined in Regulations section

AUSBL method. It does not include any

Interest – Average Actual U.S.

1.884-1(d)), on Schedule I, lines 16

amounts directly allocable to effectively

Dollar Rate

through 20. The amount of the interest

connected income under Regulations

expense allocation is the sum of the

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

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

separate interest expense allocations in

the corporation does not properly make or

Lines 14a Through 15.

each currency. If the corporation makes a

is not eligible to make a 30-day LIBOR

Computation of AUSBL Method

3% currency election under Regulations

election for the tax year, enter the interest

section 1.882-5(e)(1)(i), check the box on

Allocation Under the

expense paid or accrued by the

line 16b and include the U.S. dollar value

Scale-Down Ratio

corporation for the tax year on its average

of all currencies for which the 3%

worldwide U.S. dollar liabilities, excluding

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

currency election applies in the U.S.

U.S.-booked liabilities included on line 8,

equal to or less than U.S.-booked

dollar denominated column on line 16a.

column (c).

liabilities on line 8, column (c), the AUSBL

method allocation is subject to a

Schedule I accommodates reporting of

Line 10b. Enter on line 10b, the average

“scale-down” of the U.S. booked interest

the interest expense allocations in four

worldwide U.S. dollar denominated

expense reported on line 9, column (c).

currencies (including the U.S. dollar and

liabilities (whether or not interest bearing)

Complete lines 14a and 14b in lieu of

that are not U.S. booked liabilities

the foreign corporation’s functional

lines 10 through 13. If line 7c exceeds line

included on line 8, column (c). See

currency). If the foreign corporation has

8, column (c), leave lines 14a and 14b

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

U.S. assets in more than four currencies

blank.

that are not subject to a 3% currency

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

election, attach separate sheets using the

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

zero and the foreign corporation is not a

same size and format as shown on the

interest. Multiply the amount of U.S.

bank (and is therefore not permitted to

schedule and provide the information

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

elect the 30-day U.S. LIBOR), enter on

requested on lines 16 through 19 on the

the scale-down ratio on line 14a, and

line 10e an interest rate that is reasonable

attached sheets for all such additional

enter the result on line 14b. The allocated

under the facts and circumstances. One

currencies. Report on Schedule I, line 20,

amount is the total amount of the AUSBL

reasonable approach in determining such

column (d), the total results for all

method allocation under Regulations

interest rate would include using an

separate currency allocations shown on

section 1.882-5(d)(4). The amount on line

interest rate that:

line 19 for columns (a) through (d), plus

14b does not include any amount directly

•

any additional line 19 amounts shown on

Approximates the foreign corporation’s

allocable to ECI under Regulations

attached separate sheets (if any).

actual average U.S.-dollar borrowing rate

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

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Instructions For Schedule I (Form 1120-F) - 2009 Page 6

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