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

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Department of the Treasury

Internal Revenue Service

Instructions for Schedule I

(Form 1120-F)

Interest Expense Allocation Under Regulations Section 1.882-5

establishment under application of the

Section references are to the Internal

Exceptions from Filing

OECD Transfer Pricing Guidelines

Revenue Code unless otherwise noted.

Schedule I

principles by analogy. For treaties that

expressly provide for such attribution, see

General Instructions

A foreign corporation is not required to file

Article 7 and the accompanying

Schedule I if it (a) does not have a trade

Exchange of Notes to the 2001 United

or business within the United States, (b)

Purpose of Schedule

States-United Kingdom and 2003 United

has no worldwide interest expense for the

States-Japan Income Tax Treaties. If the

tax year to allocate under Regulations

Schedule I (Form 1120-F) is used to

foreign corporation files its tax return

section 1.882-5, or (c) conducts limited

report the amount of interest expense

using a treaty-based method of the type

activities in the United States for the tax

allocable to effectively connected income

provided in these treaties, complete Form

year that it determines do not give rise to

(“ECI”) and the deductible amount of such

8833 (and attach it to Form 1120-F) to

effectively connected income, or do not

allocation for the tax year under section

disclose the treaty position taken.

give rise to a U.S. permanent

882(c), Regulations section 1.882-5, and

establishment to which business profits

Temporary Regulations section 1.882-5T.

Who Must File

are attributable, and the corporation files

The schedule also identifies the various

a protective income tax return under

elections the taxpayer uses, and

All foreign corporations that have interest

Regulations section 1.882-4(a)(3)(vi).

discloses the basic calculations for the

expense allocable to ECI under section

year under Temporary Regulations

882(c) must complete Schedule I to report

Protective elections on protective

sections 1.882-5T(a)(7) and

this allocation, regardless of whether the

returns. A corporation that files a

1.882-5T(d)(5), and under the branch

amount allocable under Regulations

protective tax return on Form 1120-F

profits tax rules of Temporary Regulations

section 1.882-5 is deductible in the

under Regulations section

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

current year, or is otherwise deferred or

1.882-4(a)(3)(vi) may voluntarily file

permanently disallowed under other

Note. The tax elections under

Schedule I with the protective return to

sections of the Internal Revenue Code

Temporary Regulations sections 1.882-5T

preserve timely elections under

(e.g., sections 163(e), 163(j), 263A,

and 1.884-1T(e)(3) are not effected under

Temporary Regulations section

265(a), 267(a)(3)). The information

the regulations by their identification on

1.882-5T(a)(7) if the return is filed by the

reported on Schedule I is also needed to

Schedule I (Form 1120-F). See the

original due date (including extensions) of

complete Form 1120-F, Section III (the

requirements for the time, place and

the corporation’s Form 1120-F. The

determination of the branch-level interest

manner for making the interest expense

protective elections are not effective if

tax under section 884(f)). Interest

allocation and branch profits tax liability

filed during the additional extended period

expense that is treated as “branch

reduction elections for Temporary

described under Regulations section

interest” under Regulations section

Regulations sections 1.882-5T(a)(7) and

1.882-4(a)(3). The foreign corporation

1.884-4(b) may be subject to information

1.884-1T(e)(3).

need only complete the relevant portions

reporting under section 1461 or section

of Schedule I that identify its right to use

Under Regulations section 1.882-5

6049 and potential withholding under

the following elections:

and Temporary Regulations section

•

sections 1441 and 1442. A foreign

The Adjusted U.S. Booked Liability

1.882-5T, the amount of interest expense

corporation that is a reporting corporation

method (“AUSBL”) or Separate Currency

of a foreign corporation that is allocable

and required to file Form 1120-F must

Pools (“SCP”) method (item B check

under section 882(c) to income which is

complete Schedule I and attach it to Form

boxes);

•

effectively connected (or treated as

1120-F.

The adjusted basis or fair market value

effectively connected) with the conduct of

method for valuing its average assets in

a trade or business within the United

Reporting corporation. A reporting

steps 1 and 2 of the computation (line 1

States is the sum of the interest allocable

corporation is any foreign corporation that

check boxes);

•

by the foreign corporation under the

is engaged in a trade or business or

The fixed or actual ratio in step 2 (line 6

three-step process set forth in paragraphs

treated as engaged in a trade or business

check boxes);

(b), (c), and (d) or (e) of the regulation

•

within the United States directly or

The published LIBOR election for

and the directly allocated interest

indirectly at any time during the tax year.

banks under the AUSBL method in Step 3

expense determined under Temporary

(line 10 check box); and

Treaty-based return positions. If the

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

•

The de minimis foreign currency

corporation reports its interest expense

The interest allocation rules of

election under the Separate Currency

attributable to its business profits of a

Regulations section 1.882-5 and

Pools method in Step 3 (line 16b check

U.S. permanent establishment pursuant

Temporary Regulations section 1.882-5T

box).

to the express provisions and

are the exclusive rules for allocating

accompanying documents of an

interest expense under section 882(c) to

The corporation need only identify the

applicable treaty instead of under

effectively connected income and for

protective election in the first year it is

Regulations section 1.882-5, then

attributing interest expense to business

required to be made under Temporary

Schedule I, lines 1 through 9 must be

profits of a U.S. permanent establishment

Regulations section 1.882-5T(a)(7) or in

under all income tax treaties other than

completed applying the rules of

any year a taxpayer is eligible to adopt or

treaties that expressly permit attribution of

Regulations section 1.882-5 and attached

change an election and chooses to do so

business profits to a U.S. permanent

to Form 1120-F.

for that year. For example, an election to

Cat. No. 50606A

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

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