Instructions For Schedule I (Form 1120-F) -2010 (Page 6 of 8) in pdf

losses on line 14b. The ratio reported on

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

U.S.-dollar denominated liabilities. A

than or equal to the amount on line 8,

U.S.-dollar borrowing rate of zero would

line 14a shall be applied to each type of

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

generally not be considered reasonable.

item in accordance with its

complete the determination of the scaling

characterization and the scaled down

If the rules set forth above apply to the

ratio on lines 14a and 14b.

hedging income, expense, gain, or loss is

foreign corporation, attach a statement to

reported on Form 1120-F, Section II in the

Lines 10 Through 13.

Schedule I (Form 1120-F) explaining how

appropriate category to which the hedging

the interest rate entered on line 10e was

Computation of AUSBL Method

item is characterized. For instance,

derived.

Allocation with Excess Interest

periodic expense from an interest rate

Line 12. Excess interest. Multiply the

notional principal contract hedging

Line 10. 30-day LIBOR election for

rate on line 10e by the amount of excess

transaction that is recorded on the sets of

banks. If the corporation is a foreign

U.S.-connected liabilities on line 11 and

books reportable on Schedule L, and that

bank that elects to compute excess

enter the result on line 12. This amount is

is subject to the scaling ratio, is reported

interest under the AUSBL method using a

the corporation’s excess interest expense

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

published 30-day LIBOR for the tax year,

portion of its overall Regulations section

amount is also subject to reporting on

check the box on line 10 and skip lines

1.882-5 allocation that is allocable to

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

10a through 10c. Enter the published

effectively connected income under the

allocable in part to ECI and in part to

30-day LIBOR on line 10d. See

AUSBL method in Regulations section

non-ECI in accordance with the scaling

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

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

ratio of line 14a.

for additional information. The 30-day

constitutes the corporation’s excess

LIBOR election does not apply to

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

Lines 16a Through 20.

corporations other than foreign banks. For

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

this purpose, the corporation is eligible to

Step 3: Separate Currency

Line 13. Interest expense allocation.

make the 30-day LIBOR election under

Add the amount reported on line 12 and

Pools Method

the same standard that qualifies the

the amount of U.S.-booked interest

corporation as a bank eligible to make the

Corporations that allocate interest

expense from line 9, column (c) and enter

95% fixed ratio election in Regulations

expense under a Separate Currency

the result on line 13. This amount is the

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

Pools election report the allocations under

corporation’s total amount of interest

return is filed, see Protective elections on

a three-step method for each currency in

expense allocable under the three-step

protective returns on page 1 for making a

which the corporation has U.S. assets (as

formula when U.S.-connected liabilities

protective 30-day LIBOR election on

defined in Regulations section

exceed U.S.-booked liabilities under the

Schedule I filed with the protective return.

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

AUSBL method. It does not include any

Lines 10a Through 10c. Excess

through 20. The amount of the interest

amounts directly allocable to effectively

expense allocation is the sum of the

Interest – Average Actual U.S.

connected income under Regulations

separate interest expense allocations in

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

Dollar Rate

each currency. If the corporation makes a

Lines 14a Through 15.

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

3% currency election under Regulations

Computation of AUSBL Method

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

the corporation does not properly make or

Allocation Under the

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

is not eligible to make a 30-day LIBOR

election for the tax year, enter the interest

of all currencies for which the 3%

Scale-Down Ratio

expense paid or accrued by the

currency election applies in the U.S.

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

corporation for the tax year on its average

dollar denominated column on line 16a.

equal to or less than U.S.-booked

worldwide U.S. dollar liabilities, excluding

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

Schedule I accommodates reporting of

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

method allocation is subject to a

the interest expense allocations in four

column (c).

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

currencies (including the U.S. dollar and

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

expense reported on line 9, column (c).

the foreign corporation’s functional

worldwide U.S. dollar denominated

Complete lines 14a and 14b in lieu of

currency). If the foreign corporation has

liabilities (whether or not interest bearing)

lines 10 through 13. If line 7c exceeds line

U.S. assets in more than four currencies

that are not U.S.-booked liabilities

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

that are not subject to a 3% currency

included on line 8, column (c). See

blank.

election, attach separate sheets using the

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

same size and format as shown on the

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

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

schedule and provide the information

interest. Multiply the amount of U.S.

zero and the foreign corporation is not a

requested on lines 16a through 19 on the

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

bank (and is therefore not permitted to

attached sheets for all such additional

the scale-down ratio on line 14a, and

elect the 30-day LIBOR), enter on line

currencies. Report on Schedule I, line 20,

enter the result on line 14b. The allocated

10e an interest rate that is reasonable

column (d), the total results for all

amount is the total amount of the AUSBL

under the facts and circumstances. One

separate currency allocations shown on

method allocation under Regulations

reasonable approach in determining such

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

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

interest rate would include using an

any additional line 19 amounts shown on

14b does not include any amount directly

interest rate that:

attached separate sheets (if any).

allocable to ECI under Regulations

•

Approximates the foreign corporation’s

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

Line 16a. U.S. Assets — U.S. dollar

actual average U.S.-dollar borrowing rate

Hedging amounts. If the corporation

value denominated in currency. Enter

with respect to interest-bearing

has income, expense, gain, or loss from a

the U.S. dollar value of the average

U.S.-dollar denominated liabilities and

hedging transaction of a U.S.-booked

amount of U.S. assets in the appropriate

•

Is consistently applied by the foreign

liability that gives rise to interest expense

column (a) through (d) (or on the attached

corporation from year to year.

subject to the scale-down ratio, such

separate sheets for additional currencies).

Examples of interest rates that would

hedging income, expense, gain, or loss

Enter in column (a) the U.S. dollar

generally be considered reasonable

amount is also subject to reduction under

denominated U.S. assets, plus the U.S.

include the actual average interest rate on

the same scaling ratio reported on line

dollar value of any U.S. assets for which a

interest-bearing U.S.-dollar denominated

14a. See Regulations section

3% currency election is applicable for the

liabilities that are U.S.-booked liabilities or

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

tax year. In column (b), enter the average

an average arm’s length rate of interest

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

U.S. dollar value of U.S. assets

that would be charged to the foreign

such scale-down reductions of

denominated in the corporation’s home

corporation on its interest-bearing

hedging income, expense, gains, or

country functional currency. Enter the

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Instructions For Schedule I (Form 1120-F) -2010 Page 6

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