Instructions For Schedule I (Form 1120-F) - 2011 (Page 6 of 8) in pdf

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

10e an interest rate that is reasonable

amount is the total amount of the AUSBL

interest expense. Add the amounts on

under the facts and circumstances. One

method allocation under Regulations

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

reasonable approach in determining such

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

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

interest rate would include using an

14b does not include any amount directly

This result is also required to be reported

interest rate that:

allocable to ECI under Regulations

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

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

•

Approximates the foreign corporation’s

amount plus line 22 is the corporation’s

Hedging amounts. If the corporation

actual average U.S.-dollar borrowing rate

tentative branch interest for purposes of

with respect to interest-bearing

has income, expense, gain, or loss from a

the branch level interest tax under

U.S.-dollar denominated liabilities and

hedging transaction of a U.S.-booked

Regulations section 1.884-4(b). See the

•

Is consistently applied by the foreign

liability that gives rise to interest expense

instructions for Form 1120-F, Section III,

corporation from year to year.

subject to the scale-down ratio, such

Part II, line 8.

hedging income, expense, gain, or loss

Examples of interest rates that would

amount is also subject to reduction under

generally be considered reasonable

Lines 10 Through 15. Step

the same scaling ratio reported on line

include the actual average interest rate on

3: Adjusted U.S.-Booked

14a. See Regulations section

interest-bearing U.S.-dollar denominated

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

liabilities that are U.S.-booked liabilities or

Liabilities Method

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

an average arm’s length rate of interest

such scale-down reductions of

If the amount on line 7c exceeds the

that would be charged to the foreign

hedging income, expense, gains, or

amount on line 8, column (c), the

corporation on its interest-bearing

losses on line 14b. The ratio reported on

corporation has “excess interest” as

U.S.-dollar denominated liabilities. A

line 14a shall be applied to each type of

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

U.S.-dollar borrowing rate of zero would

item in accordance with its

lines 10 through 13, and skip lines 14a

generally not be considered reasonable.

characterization and the scaled down

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

If the rules set forth above apply to the

hedging income, expense, gain, or loss is

than or equal to the amount on line 8,

foreign corporation, attach a statement to

reported on Form 1120-F, Section II in the

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

Schedule I (Form 1120-F) explaining how

appropriate category to which the hedging

complete the determination of the scaling

the interest rate entered on line 10e was

item is characterized. For instance,

ratio on lines 14a and 14b.

derived.

periodic expense from an interest rate

Lines 10 Through 13.

Line 12. Excess interest. Multiply the

notional principal contract hedging

Computation of AUSBL Method

rate on line 10e by the amount of excess

transaction that is recorded on the sets of

Allocation with Excess Interest

U.S.-connected liabilities on line 11 and

books reportable on Schedule L, and that

enter the result on line 12. This amount is

is subject to the scaling ratio, is reported

Line 10. 30-day LIBOR election for

the corporation’s excess interest expense

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

banks. If the corporation is a foreign

portion of its overall Regulations section

amount is also subject to reporting on

bank that elects to compute excess

1.882-5 allocation that is allocable to

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

interest under the AUSBL method using a

effectively connected income under the

allocable in part to ECI and in part to

published 30-day LIBOR for the tax year,

AUSBL method in Regulations section

non-ECI in accordance with the scaling

check the box on line 10 and skip lines

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

ratio of line 14a.

10a through 10c. Enter the published

constitutes the corporation’s excess

Lines 16a Through 20.

30-day LIBOR on line 10d. See

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

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

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

Step 3: Separate Currency

for additional information. The 30-day

Line 13. Interest expense allocation.

LIBOR election does not apply to

Pools Method

Add the amount reported on line 12 and

corporations other than foreign banks. For

the amount of U.S.-booked interest

Corporations that allocate interest

this purpose, the corporation is eligible to

expense from line 9, column (c) and enter

expense under a Separate Currency

make the 30-day LIBOR election under

the result on line 13. This amount is the

Pools election report the allocations under

the same standard that qualifies the

corporation’s total amount of interest

a three-step method for each currency in

corporation as a bank eligible to make the

expense allocable under the three-step

which the corporation has U.S. assets (as

95% fixed ratio election in Regulations

formula when U.S.-connected liabilities

defined in Regulations section

section 1.882-5(c)(4). The 30-day LIBOR

exceed U.S.-booked liabilities under the

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

election is an annual election.

AUSBL method. It does not include any

through 20. The amount of the interest

Lines 10a Through 10c. Excess

amounts directly allocable to effectively

expense allocation is the sum of the

connected income under Regulations

Interest – Average Actual U.S.

separate interest expense allocations in

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

Dollar Rate

each currency. If the corporation makes a

3% currency election under Regulations

Lines 14a Through 15.

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

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

Computation of AUSBL Method

the corporation does not properly make or

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

Allocation Under the

is not eligible to make a 30-day LIBOR

of all currencies for which the 3%

Scale-Down Ratio

election for the tax year, enter the interest

currency election applies in the U.S.

expense paid or accrued by the

dollar denominated column on line 16a.

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

corporation for the tax year on its average

equal to or less than U.S.-booked

Schedule I accommodates reporting of

worldwide U.S. dollar liabilities, excluding

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

the interest expense allocations in four

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

method allocation is subject to a

currencies (including the U.S. dollar and

column (c).

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

the foreign corporation’s functional

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

expense reported on line 9, column (c).

currency). If the foreign corporation has

worldwide U.S. dollar denominated

Complete lines 14a and 14b in lieu of

U.S. assets in more than four currencies

liabilities (whether or not interest bearing)

lines 10 through 13. If line 7c exceeds line

that are not subject to a 3% currency

that are not U.S.-booked liabilities

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

election, attach separate sheets using the

included on line 8, column (c). See

blank.

same size and format as shown on the

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

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

schedule and provide the information

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

interest. Multiply the amount of U.S.

requested on lines 16a through 19 on the

zero and the foreign corporation is not a

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

attached sheets for all such additional

bank (and is therefore not permitted to

the scale-down ratio on line 14a, and

currencies. Report on Schedule I, line 20,

elect the 30-day LIBOR), enter on line

enter the result on line 14b. The allocated

column (d), the total results for all

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Instructions For Schedule I (Form 1120-F) - 2011 Page 6

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