Instructions For Schedule H (Form 1120-F) - 2007 printable pdf download

2 0 07

Department of the Treasury

Internal Revenue Service

Instructions for Schedule H

(Form 1120-F)

Deductions Allocated to Effectively Connected Income Under Regulations Section

1.861-8

Section references are to the Internal

directly on Form 1120-F, Section II,

provide that attribution of profits is

Revenue Code unless otherwise noted.

line 15.

determined under the OECD Transfer

Pricing Guidelines principles applied

Purpose of Schedule

by analogy. See Article 7 and the

General Instructions

accompanying Exchange of Notes to

Schedule H (Form 1120-F) is used by

the 2001 United States-United

Regulations section 1.861-8.

a foreign corporation that files Form

Kingdom and 2003 United

Under section 882(c), a foreign

1120-F to report the amount of the

States-Japan Income Tax Treaties.

corporation’s expenses are

foreign corporation’s deductible

See the instructions for Schedule M-3

deductible against its U.S. taxable

expenses that are allocated and

(Form 1120-F) for the reporting of

income only if they are connected

apportioned under Regulations

book-tax differences in Parts II and III

sections 1.861-8 and 1.861-17 and

with income effectively connected

of that schedule under a treaty-based

Temporary Regulations section

with the conduct of a trade or

return position pursuant to the OECD

1.861-8T between ECI and non-ECI.

business in the United States (“ECI”).

Transfer Pricing Guidelines

The results reported on Schedule H

The proper allocation and

principles.

are included on Form 1120-F, Section

apportionment of deductions for this

II, line 26 and, for banks only, on

purpose is generally determined

Schedule M-3 (Form 1120-F), Part III,

under the provisions of Regulations

line 31.

Specific Instructions

section 1.861-8 and Temporary

Regulations section 1.861-8T, with

Who Must File

special rules for the allocation and

Part I – Deductions

apportionment of research and

Any foreign corporation that is

experimentation expenses at

required to file Form 1120-F and is

Directly Allocated and

Regulations section 1.861-17. Under

(or is treated as) engaged in a trade

Apportioned to ECI and

or business within the United States

these regulations, a taxpayer must

at any time during the tax year must

allocate deductions to the class of

Non-ECI

complete Schedule H and attach it to

gross income to which the deduction

Part I is used to identify the total

its Form 1120-F.

is definitely related and then, if

expenses, including interest expense

necessary, apportion deductions

Protective returns. If the foreign

and bad debt expense, recorded on

among the groups of income included

corporation files a protective Form

the corporation’s home office books;

in the class. Generally, deductions

1120-F under Regulations section

to report adjustments made to

are allocated and apportioned on the

1.882-4(a)(3)(vi), Schedule H need

determine the amounts that are

basis of the factual relationship

not be completed or attached to the

deductible for U.S. tax purposes; and

between the deduction and gross

protective Form 1120-F.

to report the portion of the adjusted

income. (Under section 882(c)(1)(B),

Treaty-based return reporting of

expenses that are definitely related to

charitable contributions that are

business profits attributable to a

ECI and non-ECI. To the extent

deductible under section 170 reduce

U.S. permanent establishment. Do

included in the home office records

ECI whether or not connected with

not complete Schedule H if the

used to report total home office

such income.) Use Schedule H (Form

corporation files Form 1120-F

expenses, interest expense and bad

1120-F) to report expenses, other

pursuant to an income tax treaty to

debt expense are also identified on

than interest expense and bad debt

report business profits attributable to

Schedule H and removed from

expense, allocated and apportioned

a U.S. permanent establishment and

expenses allocated and apportioned

to ECI and non-ECI. Interest expense

applies OECD Transfer Pricing

under Regulations sections 1.861-8

of a foreign corporation is allocated to

Guidelines principles in lieu of the

and 1.861-17 and Temporary

ECI exclusively (except to the extent

ECI and expense allocation and

Regulations section 1.861-8T.

provided in certain tax treaties) under

apportionment rules of section 882(c)

Deductions reported on home office

the rules provided in Regulations

and Regulations sections 1.861-8 and

books may include expenses incurred

section 1.882-5 and Temporary

1.861-17 and Temporary Regulations

outside the foreign corporation’s

Regulations section 1.882-5T and is

section 1.861-8T. This treaty-based

home country (other than in the

reported on Schedule I (Form

reporting is permitted only if the

United States). Home office

1120-F). See Temporary Regulations

applicable income tax treaty and

deductions do not include deductions

section 1.882-5T(a)(2). Bad debt

accompanying documents (such as

that are reported on books and

expense allocated to ECI is reported

Exchange of Notes) expressly

records used to complete Form

Cat. No. 50605P

Instructions For Schedule H (Form 1120-F) - 2007

Related Articles

Related forms

Related Categories