Instructions For Schedule I (Form 1120-F) - 2011 (Page 5 of 8) in pdf

Actual Ratio Filers — Regulations

attached to Form 1120-F for each liability

contemporaneous to the time the liability

Section 1.882-5(c)

reduction election made.

is incurred.

•

Foreign banks. The liability recorded

Line 6a. Average worldwide liabilities.

If the corporation uses the Separate

on the set(s) of Schedule L books must

Enter on line 6a the average worldwide

Currency Pools Method for Step 3 (lines

be that of a foreign bank that conducts

liabilities as adjusted for U.S. tax

16a through 20), the amount included on

regulated banking operations in the

principles for the year. The corporation’s

line 7b must also be allocated to

United States as described in section

worldwide liabilities include the liabilities

determine the U.S.-connected liabilities

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

of only the corporation filing the Form

for each currency. See the instructions for

applies only for the determination of

1120-F, plus the corporation’s share of

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

U.S.-booked liabilities and corresponding

partnership liabilities and any liabilities of

no liability reduction election is made for

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

any disregarded entities that are treated

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

apply for other purposes such as

as liabilities of the foreign corporation

determining the eligibility for the fixed

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

under U.S. tax principles. The books of

ratio under Step 2, reportable on line 6d.

the foreign corporation and any such

Subtract line 7b from line 7a and enter the

The liability must be recorded on the

disregarded entities must be combined,

amount on line 7c. The amount entered is

Schedule L books before the close of the

the amount of U.S.-connected liabilities

with applicable eliminating entries for

day on which the liability is incurred

for purposes of determining the amount of

transactions between them. See

unless an inadvertent error is shown

interest expense allocable to effectively

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

under the facts and circumstances. See

connected income in Step 3. If the

The classification of the worldwide

the definition and requirements for

corporation uses the Separate Currency

liabilities is determined under U.S. tax

U.S.-booked liabilities of foreign banks

Pools Method for Step 3, the sum of all

principles. See Regulations section

under Regulations section

U.S.-connected liabilities shown on line

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

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

17b (including any attachments for lines

worldwide liabilities must be determined

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

16a through 19 for additional separate

substantially in accordance with U.S. tax

eligibility to reduce excess interest using

currency pool computations) must equal

principles. Foreign banks must average

the deposit liability safe harbor under the

the amount shown on line 7c after the

the worldwide liabilities using the

branch-level interest tax on excess

liability reduction election has been taken

beginning, middle, and end of year

interest under Regulations section

into account.

values. Corporations other than banks

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

must average the worldwide liabilities

Lines 8 and 9. Step 3: Interest

using the year-to-year values of its

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

Expense Allocation (Including

liabilities.

liabilities of partnership interests.

U.S.-Booked Liabilities and

Line 6b. Average worldwide assets.

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

U.S.-Booked Interest Expense

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

Enter the average worldwide assets as

Included in the Determination

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

This amount is the corporation’s average

of Branch Interest)

using the same nonconsolidated books

U.S.-booked liabilities with respect to its

for reporting average worldwide liabilities

distributive share of liabilities during the

Line 8. Average Third Party

on line 6a. Transactions with disregarded

averaging period from partnerships

entities included in the actual ratio

U.S.-Booked Liabilities

engaged in trade or business within the

computation constitute interbranch

United States. The amount reportable on

Line 8, column (a). Schedule L

transactions under U.S. tax principles and

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

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

must be eliminated. See Regulations

17 is the corporation’s share of

column (a), the average amount of

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

partnership liabilities for which it is

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

averaging period applicable to worldwide

allocated a distributive share of interest

set(s) of books reportable on Schedule L

liabilities. If the corporation uses the

expense. See Regulations section

using the most frequent averaging period

actual ratio method, the amount entered

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

available but not less frequently than the

on line 6b is also reported on Schedule H

minimum averaging periods required for

(Form 1120-F), line 22b.

Line 9. U.S.-Booked Interest

U.S. assets reported on line 5. The

Expense

average U.S.-booked liabilities include all

Fixed Ratio Filers — Regulations

third-party liabilities on the set(s) of

Line 9, column (a). Schedule L booked

Section 1.882-5(c)(4)

Schedule L books whether interest

interest expense. Enter the amount of

Line 7a. U.S.-connected liabilities

bearing or not. Exclude interbranch

third-party interest expense from the

before Regulations section

liabilities shown on the Schedule L books

Schedule L set(s) of books with respect to

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

unless such amounts are treated as

liabilities reported on line 8, column (a).

average U.S. assets from line 5, column

allocations of third-party amounts with

Do not include interest expense that is

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

respect to a global dealing operation

directly allocable under Regulations

enter the result on line 7a. The result is

under Proposed Regulations section

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

the amount of U.S.-connected liabilities

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

corporation’s distributive share of direct

determined before the application of any

valuations of dealer derivative securities

interest expense allocations from

liability reduction election(s) made under

may constitute liabilities that are treated

partnerships otherwise reportable in

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

as U.S.-booked liabilities includible on line

column (b). All direct interest expense

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

allocations to ECI are reported on line 22.

Line 7b. U.S. liability reduction election

amounts on line 8a to the extent they give

amount. Enter the total amount of all

rise to directly allocable interest under

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

liability reduction election amounts made

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

interest expense from partnerships.

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

are partnership liabilities includible in

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

column (b).

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

Note. A liability reduction election may

•

(“Total” column). Do not include interest

be made only to the extent needed to

Corporations other than banks. The

expense that is directly allocable under

reduce a dividend equivalent amount

definition of U.S.-booked liability for a

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

under section 884(b) to zero. See

foreign corporation other than a bank is

the corporation’s distributive share of a

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

described in Regulations section

partnership’s direct interest expense

the time, place, and manner for making

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

allocations. All direct interest expense

the liability reduction election and the

the Schedule L books must be recorded

separate disclosures required to be

on such books reasonably

allocations to ECI are reported on line 22.

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Instructions For Schedule I (Form 1120-F) - 2011 Page 5

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