Instructions For Schedule I (Form 1120-F) -2010 (Page 5 of 8) in pdf

Regulations section 1.882-5(c)(2)(viii).

corporation uses the Separate Currency

U.S.-booked liabilities of foreign banks

The classification of the worldwide

Pools Method for Step 3, the sum of all

under Regulations section

1.882-5(d)(2)(iii). Note: The section

liabilities is determined under U.S. tax

U.S.-connected liabilities shown on line

principles. See Regulations section

17b (including any attachments for lines

585(a)(2)(B) standard also applies for

1.882-5(c)(2)(ii). The value of the

16a through 19 for additional separate

eligibility to reduce excess interest using

worldwide liabilities must be determined

currency pool computations) must equal

the deposit liability safe harbor under the

substantially in accordance with U.S. tax

the amount shown on line 7c after the

branch-level interest tax on excess

principles. Foreign banks must average

liability reduction election has been taken

interest under Regulations section

the worldwide liabilities using the

into account.

1.884-4(a)(2)(iii).

beginning, middle, and end of year

Line 8, column (b). U.S.-booked

Lines 8 and 9. Step 3: Interest

values. Corporations other than banks

liabilities of partnership interests.

Expense Allocation (Including

must average the worldwide liabilities

Enter on line 8, column (b), the amount

U.S.-Booked Liabilities and

using the year-to-year values of its

from Schedule P, line 17 (“Total” column).

liabilities.

U.S.-Booked Interest Expense

This amount is the corporation’s average

U.S.-booked liabilities with respect to its

Included in the Determination

Line 6b. Average worldwide assets.

distributive share of liabilities during the

Enter the average worldwide assets as

of Branch Interest)

averaging period from partnerships

adjusted for U.S. tax principles on line 6b,

engaged in trade or business within the

using the same nonconsolidated books

Line 8. Average Third Party

United States. The amount reportable on

for reporting average worldwide liabilities

U.S.-Booked Liabilities

line 8, column (b), and Schedule P, line

on line 6a. Transactions with disregarded

Line 8, column (a). Schedule L

17 is the corporation’s share of

entities included in the actual ratio

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

partnership liabilities for which it is

computation constitute interbranch

column (a), the average amount of

allocated a distributive share of interest

transactions under U.S. tax principles and

third-party U.S.-booked liabilities from the

expense. See Regulations section

must be eliminated. See Regulations

set(s) of books reportable on Schedule L

1.884-1(d)(3)(vi).

section 1.882-5(c)(2)(viii). Use the same

using the most frequent averaging period

averaging period applicable to worldwide

Line 9. U.S.-Booked Interest

available but not less frequently than the

liabilities. If the corporation uses the

Expense

minimum averaging periods required for

actual ratio method, the amount entered

U.S. assets reported on line 5. The

Line 9, column (a). Schedule L booked

on line 6b is also reported on Schedule H

average U.S.-booked liabilities include all

interest expense. Enter the amount of

(Form 1120-F), line 22b.

third-party liabilities on the set(s) of

third-party interest expense from the

Fixed Ratio Filers — Regulations

Schedule L books whether interest

Schedule L set(s) of books with respect to

Section 1.882-5(c)(4)

bearing or not. Exclude interbranch

liabilities reported on line 8, column (a).

liabilities shown on the Schedule L books

Do not include interest expense that is

Line 7a. U.S.-connected liabilities

unless such amounts are treated as

directly allocable under Regulations

before Regulations section

allocations of third-party amounts with

section 1.882-5(a)(1)(ii), including the

1.884-1(e)(3) election(s). Multiply the

respect to a global dealing operation

corporation’s distributive share of direct

average U.S. assets from line 5, column

under Proposed Regulations section

interest expense allocations from

(d), by the ratio entered on line 6e and

1.863-3(h) (e.g., mark-to-market

partnerships otherwise reportable in

enter the result on line 7a. The result is

valuations of dealer derivative securities

column (b). All direct interest expense

the amount of U.S.-connected liabilities

may constitute liabilities that are treated

allocations to ECI are reported on line 22.

determined before the application of any

as U.S.-booked liabilities includible on line

Line 9, column (b). U.S.-booked

liability reduction election(s) made under

8, column (a)). Do not include liability

interest expense from partnerships.

Regulations section 1.884-1(e)(3).

amounts on line 8a to the extent they give

Enter on line 9, column (b), the amount

Line 7b. U.S. liability reduction election

rise to directly allocable interest under

from Schedule P (Form 1120-F), line 14c

amount. Enter the total amount of all

Regulations section 1.882-5(a)(1)(ii) or

(“Total” column). Do not include interest

liability reduction election amounts made

are partnership liabilities includible in

expense that is directly allocable under

under Regulations section 1.884-1(e)(3).

column (b).

Regulations section 1.882-5(a)(1)(ii) from

•

Corporations other than banks. The

Note. A liability reduction election may

the corporation’s distributive share of a

definition of U.S.-booked liability for a

be made only to the extent needed to

partnership’s direct interest expense

foreign corporation other than a bank is

reduce a dividend equivalent amount

allocations. All direct interest expense

described in Regulations section

under section 884(b) to zero. See

allocations to ECI are reported on line 22.

1.882-5(d)(2)(ii). Liabilities reflected on

Regulations section 1.884-1(e)(3)(iv) for

Line 9, column (c). Total U.S.-booked

the Schedule L books must be recorded

the time, place, and manner for making

interest expense. Add the amounts on

on such books reasonably

the liability reduction election and the

line 9, column (a), and line 9, column (b)

contemporaneous to the time the liability

separate disclosures required to be

and enter the result on line 9, column (c).

is incurred.

attached to Form 1120-F for each liability

This result is also required to be reported

•

Foreign banks. The liability recorded

reduction election made.

on Form 1120-F, Section III, line 8. This

on the set(s) of Schedule L books must

If the corporation uses the Separate

amount plus line 22 is the corporation’s

be that of a foreign bank that conducts

Currency Pools Method for Step 3 (lines

tentative branch interest for purposes of

regulated banking operations in the

16a through 20), the amount included on

the branch level interest tax under

United States as described in section

line 7b must also be allocated to

Regulations section 1.884-4(b). See the

585(a)(2)(B). Note: This requirement

determine the U.S.-connected liabilities

instructions for Form 1120-F, Section III,

applies only for the determination of

for each currency. See the instructions for

Part II, line 8.

U.S.-booked liabilities and corresponding

lines 7c below and line 17b on page 7. If

U.S.-booked interest expense. It does not

Lines 10 Through 15. Step

no liability reduction election is made for

apply for other purposes such as

the tax year, enter -0- on line 7b.

3: Adjusted U.S.-Booked

determining the eligibility for the fixed

Line 7c. U.S.-connected liabilities.

ratio under Step 2, reportable on line 6d.

Liabilities Method

Subtract line 7b from line 7a and enter the

The liability must be recorded on the

amount on line 7c. The amount entered is

Schedule L books before the close of the

If the amount on line 7c exceeds the

the amount of U.S.-connected liabilities

day on which the liability is incurred

amount on line 8, column (c), the

for purposes of determining the amount of

unless an inadvertent error is shown

corporation has “excess interest” as

interest expense allocable to effectively

under the facts and circumstances. See

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

connected income in Step 3. If the

the definition and requirements for

lines 10 through 13, and skip lines 14a

-5-

Instructions For Schedule I (Form 1120-F) -2010 Page 5

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