Instructions For Schedule I (Form 1120-F) - 2011 (Page 3 of 8) in pdf

Lines 1 Through 9: All

1.882-5(a)(1)(ii) in accordance with the

interbranch assets are eliminated only to

rules of Temporary Regulations section

the extent they are allocated under

Foreign Corporations

1.861-10T(b) or (c) is reported on line 22.

Proposed Regulations section 1.863-3(h)

to foreign source non-ECI. The allocable

Line 23. Summary of Regulations

Lines 1 Through 5. Step 1:

amount to non-ECI is eliminated from

section 1.882-5 allocation. The amount

Determination of Total Value of

U.S. assets on line 3c, column (a) (total

of interest expense allocable to effectively

U.S. Assets

other non-ECI assets).

connected income under Regulations

Assets includible on lines 1 through 5 are

Line 3b, column (a). Total non-ECI

section 1.882-5 is the sum of the amount

the U.S. assets of the corporation as

assets under section 864(c)(4)(D).

allocated under either the AUSBL or

defined in Regulations sections

Enter on line 3b, column (a), the average

Separate Currency Pools method on line

1.882-5(b) and 1.884-1(d). The U.S.

assets included on line 2, column (a) that

15 or 20, and the amount directly

assets are valued on an average basis for

give rise to non-ECI received from

allocated to ECI and reportable on line

interest expense allocation purposes.

foreign-related corporations under section

22. The resulting amount allocable and

864(c)(4)(D). Such amounts include

reported on line 23 is also reconciled and

Frequency of averaging. The average

assets from transactions with

reported on Form 1120-F, Section III, Part

value of assets for this step is to be

foreign-related corporations that give rise

II, line 7c (branch-level interest tax).

computed at the most frequent, regular

to foreign source dividends, interest, rents

intervals for which data is reasonably

Line 24. Deferrals and

or royalties, whether or not such amounts

available. For foreign banks, the minimum

disallowances under other Code

are attributable to a U.S. office of the

averaging period is monthly (beginning of

sections. The interest expense

corporation under section 864(c)(5). A

tax year and monthly thereafter). For

allocation reportable on line 23 is

foreign related corporation is a foreign

corporations other than a bank, the

determined under Regulations section

corporation the taxpayer owns (under

minimum averaging period is

1.882-5 before application of other Code

section 958(a)) or is treated as owning

semi-annually (beginning, middle, and

sections that defer or disallow the interest

(under section 958(b)) more than 50% of

end of the tax year). See Regulations

deduction in whole or in part. See

the total combined voting power of all

section 1.882-5(b)(3).

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

classes of stock entitled to vote. Enter the

Line 1. Indicate whether the corporation

average asset number for assets

values its U.S. assets on the adjusted

described in section 864(c)(4)(D) on line

basis method (see Regulations section

Specific Instructions

3b, column (a), regardless of whether

1.882-5(b)(2)(i)) or whether it has elected

such assets give rise to non-ECI under

the fair market value method (see

Item A. Foreign banks. Check the box

another Code section or regulation. For

Regulations section 1.882-5(b)(2)(ii)). The

example, report income that is non-ECI

in item A if the foreign corporation is a

adjusted basis method election is subject

under section 864(c)(4)(D) on line 3b,

bank as defined in Regulations section

to the minimum five-year period described

column (a) even if such income is also not

1.882-5(c)(4). The term “bank” is defined

in Regulations section 1.882-5(a)(7). In

attributable to a U.S. office of a banking,

in the regulation as a bank that meets the

order to elect the fair market value

financing, or similar business under

statutory definition applicable to domestic

method, the corporation must also use

Regulations section 1.864-6(b)(2)(ii)(b)

banks (except for the fact that the

the actual ratio method. Once elected, the

and the principles of Regulations section

corporation is foreign) and without regard

fair market value method must be used

1.864-4(c)(5)(ii).

to whether the corporation’s required

for Step 1 and Step 2 of the three-step

banking activities are effectively

Line 3c, column (a). Total other

formula under Regulations section

connected with its trade or business

non-ECI assets. Enter on line 3c,

1.882-5 and may not be changed back to

within the United States. The required

column (a), all other assets (or portion

the adjusted basis method without

banking activities need only be conducted

thereof) included on line 2, column (a)

advance consent from the Commissioner

on a worldwide basis. To qualify as a

that give rise to domestic or foreign

or his delegate.

bank for interest expense allocation

source non-ECI. If income from a security

Line 2, column (a). Total assets per

purposes, the foreign corporation must be

is treated as partially ECI and partially

books. Enter the total average assets

subject to bank regulatory supervision

non-ECI under Regulations section

derived from the combined set or set(s) of

and examination in its home country of a

1.864-4(c)(5)(ii), enter the amount of the

books that are reportable on Schedule L.

type similar to that required of domestic

asset on line 3c, column (a) in the

The total average assets includes

banks by a State or Federal authority

proportion that the income, gain, or loss

interbranch balances with other set(s) of

having supervision over banking

from such asset that is treated as

books of the corporation that are not

institutions, and a substantial amount of

non-ECI bears to the total income, gain,

reportable on Schedule L.

the corporation’s business must consist of

or loss from such asset. Do the same for

receiving deposits and making loans and

Line 3a, column (a). Total interbranch

the non-ECI portion of any asset whose

discounts, or of exercising fiduciary

assets. Enter on line 3a, column (a), the

income is allocated under the proposed

powers similar to those permitted to

total of the corporation’s average

global dealing regulations or under an

national banks under authority of the

interbranch assets included on line 2,

Advance Pricing Agreement pursuant to a

Comptroller of the Currency. See sections

column (a). The average interbranch

competent authority agreement. See

581 and 585(a)(2).

assets recorded on the set(s) of Schedule

Proposed Regulations sections

L books do not create U.S. assets under

1.884-1(d)(2)(vii) and 1.884-1(d)(2)(xi),

Note. The reference to the definition of

Regulations section 1.882-5(b)(1)(iv) and

Example 8. Attach a schedule which

the term “bank” for purposes of

are disregarded for purposes of the

describes each type of “other” non-ECI

determining the U.S.-booked liabilities of

interest expense allocation rules.

asset included on line 3c. For each type,

banks under Regulations section

show the calculation of the amount

1.882-5(d)(2)(iii) requires that the

Note. If under the global dealing

included on line 3c for that type, including

corporation meet the section 585(a)(2)

proposed regulations (Proposed

a total for each type. With respect to any

regulated banking requirements in its

Regulations section 1.863-3(h), which

amount included on line 3c pursuant to

trade or business within the United

references the Proposed Regulations

Regulations section 1.864-4(c)(5)(ii)),

States. The section 585(a)(2) standard

section 1.482-8 principles), the

attach a separate schedule which

must also be satisfied at the corporation’s

corporation recognizes an amount

indicates this amount and how it was

U.S. trade or business level for purposes

recorded as an interbranch asset, such

calculated.

of electing the deposit liability safe harbor

amount is treated as the allocation and

applicable to the reduction of excess

source of third-party securities dealing

Line 3d, column (a). Adjustments for

interest under Regulations section

income and is not eliminated from U.S.

amounts from partnerships and certain

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

assets on line 3a, column (a). Such

disregarded entities included on line 2,

-3-

Instructions For Schedule I (Form 1120-F) - 2011 Page 3

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