Instructions For Schedule I (Form 1120-F) - 2011 (Page 7 of 8) in pdf

Lines 21 Through 25.

pool. Enter for each column on line 18a,

separate currency allocations shown on

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

the corporation’s worldwide interest

Summary – Interest

any additional line 19 amounts shown on

expense paid or accrued for the tax year

attached separate sheets (if any).

in the separate currency pool. In column

Expense Allocation and

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

Line 16a. U.S. Assets — U.S. dollar

Deduction Under

interest paid or accrued. For all other

value denominated in currency. Enter

separate currency pools, enter the

Regulations Section

the U.S. dollar value of the average

worldwide interest expense in the

amount of U.S. assets in the appropriate

1.882-5

functional currency of the currency pool.

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

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

separate sheets for additional currencies).

Line 22. Interest expense directly

functional currency pool in column (b) or

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

allocable under Regulations section

for any other non-U.S. dollar currencies

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

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

for which a separate currency pool

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

interest expense directly allocable to ECI

allocation is made in additional columns.

3% currency election is applicable for the

under Regulations section

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

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

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

The worldwide interest expense in each

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

that has a U.S. asset and indebtedness

currency pool includes interest expense in

denominated in the corporation’s home

that meet the requirements of Temporary

each currency that is recorded on the

country functional currency. Enter the

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

Schedule L books and reportable on

average U.S. assets of all other currency

as limited by Temporary Regulations

Schedule I, line 9, column (c).

pools beginning with 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

columns shown on any attached separate

on line 18b, the average liabilities

in Temporary Regulations section

sheets) must equal the total average U.S.

(whether or not interest bearing)

1.861-10T.

assets entered on line 5, column (d).

denominated in each separate currency

pool. In column (a), enter the average

A transaction that hedges a U.S. asset

Note. See Temporary Regulations

worldwide liabilities (whether or not

is taken into account for purposes of

section 1.861-10T(d) for rules requiring

interest bearing) denominated in U.S.

determining the currency denomination

reductions in basis to assets required by

dollars. For all other separate currency

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

the direct interest allocation rules in

pools, enter the average amount of

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

Temporary Regulations section

liabilities (whether or not interest bearing)

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

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

denominated in the currency of the

Temporary Regulations section

currency. Complete line 17b as follows:

currency pool. Do not enter the U.S.

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

dollar value of the currency pool for any

Determination of U.S.-connected

institutions. Financial institutions are

column other than column (a). In

liabilities if no U.S. liability reduction

permitted to directly allocate interest

determining the average worldwide

election is made. For each applicable

expense only under the non-recourse

borrowing rate, the liabilities in each

column, multiply the U.S. assets on line

indebtedness rules described in

currency pool include the amounts

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

Temporary Regulations section

recorded on the sets of books reportable

on line 17a and enter the amount on line

1.861-10T(b).

on Schedule L and included on Schedule

17b. The resulting amount constitutes the

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

U.S.-connected liabilities for each

Line 23. Total interest expense

average third-party liabilities using the

currency pool when the corporation does

allocable to ECI under Regulations

most frequent averaging period for which

not make a U.S. liability reduction election

section 1.882-5. Add lines 21 and 22

data is reasonably available in

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

and enter the result on line 23. This result

accordance with the principles of

is the total amount of interest expense

Determination of U.S.-connected

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

allocable to ECI, including directly

liabilities if a U.S. liability reduction

(c)(2)(iv).

allocated interest. This allocable amount

election is made. If the corporation

may not exceed the total interest expense

makes one or more U.S. liability reduction

Line 18c. Borrowing rate. Divide line

paid or accrued by the corporation. See

elections for the tax year under

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

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

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

worldwide borrowing rate for each

corporation’s total interest expense paid

total amount of the liability reduction

separate currency pool.

or accrued is less than the amount of

shown on line 7b must be allocated to

Line 19. Interest expense allocation by

allocation that would result by adding

each of the separate currency pools in

separate currency pool. For each

lines 21 and 22, enter such lesser amount

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

column, multiply the amount on line 17b

on line 23. The amount entered on line 23

The amount entered on line 17b for each

by the borrowing rate on line 18c and

is the amount of interest expense taken

column is computed as:

enter the result on line 19. The amount on

into account for branch-level interest tax

1. The amount on line 16a multiplied

line 19 is the amount of interest expense

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

by the ratio on line 17a, less

allocable to ECI in each separate

Regulations section 1.884-4(a),

2. The amount of the liability reduction

currency pool.

regardless of whether the deductibility of

election entered on line 7b multiplied by

such amount is temporarily deferred or

the proportion that the average U.S.

Line 20. Total interest expense

disallowed for allocation to tax-exempt

assets in the separate currency pool

allocable to ECI under the separate

income (including treaty exempt income).

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

currency pools method. On line 20,

The amount reportable on line 23 is

separate currencies (i.e., the total

enter the sum of the amounts in each

reconciled and reported on Form 1120-F,

average U.S. assets entered on line 5,

column on line 19 (including amounts

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

column (d)).

from line 19 of attached schedule, if any).

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

The amount on line 20 is the total amount

(d) and (e).

Attach a schedule showing the

of interest expense allocable to ECI under

computation and the allocation of the

the Separate Currency Pools method.

Line 24. Tax-exempt allocations,

liability reduction election to each

The amount on line 20 does not include

deferrals and capitalization of interest

separate currency pool.

any amount of interest expense directly

expense allocation from line 23. The

Line 18a. Worldwide book interest

allocable under Regulations section

amount of interest expense allocable to

expense for each separate currency

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

ECI entered on line 23 is subject to

-7-

Instructions For Schedule I (Form 1120-F) - 2011 Page 7

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