Instructions For Schedule I (Form 1120-F) -2010 (Page 7 of 8) in pdf

average U.S. assets of all other currency

Schedule L books and reportable on

as limited by Temporary Regulations

pools beginning with column (c).

Schedule I, line 9, column (c).

section 1.861-10T(d)(1), shall directly

allocate interest expense from such

Line 18b. Worldwide average liabilities

Note. The sum of all U.S. assets in

indebtedness to income from such asset

in each separate currency pool. Enter

columns (a) through (d) (and in any

in the manner and to the extent provided

on line 18b, the average liabilities

columns shown on any attached separate

in Temporary Regulations section

(whether or not interest bearing)

sheets) must equal the total average U.S.

1.861-10T.

denominated in each separate currency

assets entered on line 5, column (d).

Note. See Temporary Regulations

pool. In column (a), enter the average

A transaction that hedges a U.S. asset

section 1.861-10T(d) for rules requiring

worldwide liabilities (whether or not

is taken into account for purposes of

reductions in basis to assets required by

interest bearing) denominated in U.S.

determining the currency denomination

the direct interest allocation rules in

dollars. For all other separate currency

and the value of the U.S. asset. See

Temporary Regulations section

pools, enter the average amount of

Regulations section 1.882-5(e)(1)(i).

1.861-10T(b) or (c). The rules of

liabilities (whether or not interest bearing)

Temporary Regulations section

denominated in the currency of the

Line 17b. U.S.-connected liabilities per

1.861-10T(c) apply only to non-financial

currency pool. Do not enter the U.S.

currency. Complete line 17b as follows:

institutions. Financial institutions are

dollar value of the currency pool for any

Determination of U.S.-connected

permitted to directly allocate interest

column other than column (a). In

liabilities if no U.S. liability reduction

expense only under the non-recourse

determining the average worldwide

election is made. For each applicable

indebtedness rules described in

borrowing rate, the liabilities in each

column, multiply the U.S. assets on line

Temporary Regulations section

currency pool include the amounts

16a by the U.S.-connected liability ratio

1.861-10T(b).

recorded on the sets of books reportable

on line 17a and enter the amount on line

on Schedule L and included on Schedule

Line 23. Total interest expense

17b. The resulting amount constitutes the

I, line 8, column (c). Determine the

allocable to ECI under Regulations

U.S.-connected liabilities for each

average third-party liabilities using the

section 1.882-5. Add lines 21 and 22

currency pool when the corporation does

most frequent averaging period for which

and enter the result on line 23. This result

not make a U.S. liability reduction election

data is reasonably available in

is the total amount of interest expense

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

accordance with the principles of

allocable to ECI, including directly

Regulations sections 1.882-5(b)(3) and

Determination of U.S.-connected

allocated interest. This allocable amount

(c)(2)(iv).

liabilities if a U.S. liability reduction

may not exceed the total interest expense

election is made. If the corporation

paid or accrued by the corporation. See

Line 18c. Borrowing rate. Divide line

makes one or more U.S. liability reduction

Regulations section 1.882-5(a)(3). If the

18a by line 18b. The result is the average

elections for the tax year under

corporation’s total interest expense paid

worldwide borrowing rate for each

Regulations section 1.884-1(e)(3), the

or accrued is less than the amount of

separate currency pool.

total amount of the liability reduction

allocation that would result by adding

Line 19. Interest expense allocation by

shown on line 7b must be allocated to

lines 21 and 22, enter such lesser amount

separate currency pool. For each

each of the separate currency pools in

on line 23. The amount entered on line 23

column, multiply the amount on line 17b

proportion to the U.S. assets in each pool.

is the amount of interest expense taken

by the borrowing rate on line 18c and

The amount entered on line 17b for each

into account for branch-level interest tax

enter the result on line 19. The amount on

column is computed as:

purposes under section 884(f)(1)(B) and

line 19 is the amount of interest expense

Regulations section 1.884-4(a),

1. The amount on line 16a multiplied

allocable to ECI in each separate

regardless of whether the deductibility of

by the ratio on line 17a, less

currency pool.

such amount is temporarily deferred or

2. The amount of the liability reduction

Line 20. Total interest expense

disallowed for allocation to tax-exempt

election entered on line 7b multiplied by

allocable to ECI under the separate

income (including treaty exempt income).

the proportion that the average U.S.

currency pools method. On line 20,

The amount reportable on line 23 is

assets in the separate currency pool

enter the sum of the amounts in each

reconciled and reported on Form 1120-F,

bears to all of the U.S. assets in all

column on line 19 (including amounts

Section III, line 7c, and on Schedule M-3

separate currencies (i.e., the total

from line 19 of attached schedule, if any).

(Form 1120-F), Part III, line 26b, columns

average U.S. assets entered on line 5,

The amount on line 20 is the total amount

(d) and (e).

column (d)).

of interest expense allocable to ECI under

Line 24. Tax-exempt allocations,

the Separate Currency Pools method.

Attach a schedule showing the

deferrals and capitalization of interest

The amount on line 20 does not include

computation and the allocation of the

expense allocation from line 23. The

any amount of interest expense directly

liability reduction election to each

amount of interest expense allocable to

allocable under Regulations section

separate currency pool.

ECI entered on line 23 is subject to

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

additional rules that may defer or disallow

Line 18a. Worldwide book interest

deductibility in whole or in part.

expense for each separate currency

Lines 21 Through 25.

pool. Enter for each column on line 18a,

Line 24a. Tax-exempt allocations.

Summary – Interest

the corporation’s worldwide interest

Enter on line 24a the amount of allocable

expense paid or accrued for the tax year

interest expense on line 23 that is subject

Expense Allocation and

in the separate currency pool. In column

to further allocation and apportionment to

Deduction Under

(a), enter the worldwide U.S. dollar

tax-exempt income under section 265 or

interest paid or accrued. For all other

under the provisions of an applicable

Regulations Section

separate currency pools, enter the

income tax treaty. Attach a schedule

worldwide interest expense in the

showing how such allocation between

1.882-5

functional currency of the currency pool.

exempt and non-exempt ECI has been

Line 22. Interest expense directly

Do not enter the U.S. dollar value of the

made. See Regulations section

functional currency pool in column (b) or

allocable under Regulations section

1.882-5(a)(5) and Regulations section

for any other non-U.S. dollar currencies

1.882-5(a)(1)(ii). Enter the amount of

1.882-5(a)(8), examples (3) and (4).

for which a separate currency pool

interest expense directly allocable to ECI

Treaty-exempt income may include

allocation is made in additional columns.

under Regulations section

income that is ECI under the force of

See Regulations section 1.882-5(e)(2).

1.882-5(a)(1)(ii). A foreign corporation

attraction principle of section 864(c)(3)

The worldwide interest expense in each

that has a U.S. asset and indebtedness

but which is business profits not

currency pool includes interest expense in

that meet the requirements of Temporary

attributable to a U.S. permanent

each currency that is recorded on the

Regulations section 1.861-10T(b) or (c),

establishment of the corporation under an

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Instructions For Schedule I (Form 1120-F) -2010 Page 7

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