Instructions For Schedule I (Form 1120-F) - 2007 (Page 3 of 8) in pdf

AUSBL method filers. AUSBL

Note. The reference to the definition of

are disregarded for purposes of the

method filers complete all columns on

the term “bank” for purposes of

interest expense allocation rules.

lines 1 through 15 and lines 21 through

determining the U.S. booked liabilities of

Note. If under the global dealing

25. Do not complete lines 16 through 20.

banks under Regulations section

proposed regulations (Proposed

1.882-5(d)(2)(iii) and Temporary

Separate currency pools method

Regulations section 1.863-3(h), which

Regulations section 1.882-5T(d)(iii)(A)

filers. Separate Currency Pools method

references the Proposed Regulations

requires that the corporation meet the

filers complete all columns on lines 1

section 1.482-8 principles), the

section 585(a)(2) regulated banking

through 9 and lines 16 through 25. Do not

corporation recognizes an amount

requirements in its trade or business

complete lines 10 through 15.

recorded as an interbranch asset, such

within the United States. The section

amount is treated as the allocation and

Lines 21 through 25. Summary –

585(a)(2) standard must also be satisfied

source of third-party securities dealing

Interest expense allocation and

at the corporation’s U.S. trade or

income and is not eliminated from U.S.

deduction under Regulations section

business level for purposes of electing the

assets on line 3a, column (a). Such

1.882-5

deposit liability safe harbor applicable to

interbranch assets are eliminated only to

Line 22. Direct interest allocations.

the reduction of excess interest under

the extent they are allocated under

Interest expense that is directly allocable

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

Proposed Regulations section 1.863-3(h)

under Temporary Regulations section

to foreign source non-ECI. The allocable

1.882-5T(a)(1)(ii) in accordance with the

Lines 1 Through 9: All

amount to non-ECI is eliminated from

rules of Temporary Regulations section

U.S. assets on line 3c, column (a) (total

1.861-10T(b) or (c) is reported on line 22.

Foreign Corporations

other non-ECI assets).

Line 23. Summary of Regulations

Lines 1 Through 5. Step 1:

section 1.882-5 allocation. The amount

Line 3b, column (a). Total non-ECI

of interest expense allocable to effectively

assets under section 864(c)(4)(D).

Determination of U.S. Assets

connected income under Regulations

Enter on line 3b, column (a), the average

Assets includable on lines 1 through 5 are

section 1.882-5 is the sum of the amount

assets included on line 2, column (a) that

the U.S. assets of the corporation as

allocated under either the AUSBL or

give rise to non-ECI received from

defined in Regulations sections

Separate Currency Pools method on line

foreign-related corporations under section

1.882-5(b) and 1.884-1(d), and

15 or 20, and the amount directly

864(c)(4)(D). Such amounts include

Temporary Regulations section

allocated to ECI and reportable on line

assets from transactions with

1.882-5T(b). The U.S. assets are valued

foreign-related corporations that give rise

22. The resulting amount allocable and

on an average basis for interest expense

to foreign source dividends, interest, rents

reported on line 23 is also reconciled and

allocation purposes.

or royalties, whether or not such amounts

reported on Form 1120-F, Section III, Part

Frequency of averaging. The average

are attributable to a U.S. office of the

II, line 7c (branch-level interest tax).

value of assets for this step is to be

corporation under section 864(c)(5). A

Line 24. Deferrals and

computed at the most frequent, regular

foreign related corporation is a foreign

disallowances under other Code

intervals for which data is reasonably

corporation the taxpayer owns (under

sections. The interest expense

available. See Temporary Regulations

section 958(a)) or is treated as owning

allocation reportable on line 23 is

section 1.882-5T(b)(3). For foreign banks,

(under section 958(b)) more than 50% of

determined under Regulations section

the minimum averaging period is monthly

the total combined voting power of all

1.882-5 before application of other Code

(beginning of tax year and monthly

classes of stock entitled to vote. Enter the

sections that defer or disallow the interest

thereafter). For corporations other than a

average asset number for assets

deduction in whole or in part. See

bank, the minimum averaging period is

described in section 864(c)(4)(D) on line

Regulations section 1.882-5(a)(5).

semi-annually (beginning, middle and end

3b, column (a), regardless of whether

of the tax year).

such assets give rise to non-ECI under

another Code section or regulation. For

Specific Instructions

Line 1. Indicate whether the corporation

example, report income that is non-ECI

values its U.S. assets on the adjusted

under section 864(c)(4)(D) on line 3b,

Item A. Foreign banks. Check the box

basis method (see Regulations section

column (a) even if such income is also not

in item A if the foreign corporation is a

1.882-5(b)(2)(i)) or whether it has elected

attributable to a U.S. office of a banking,

bank as defined in Temporary

the fair market value method (see

financing or similar business under

Regulations section 1.882-5T(c)(4). The

Temporary Regulations section

Regulations section 1.864-6(b)(2)(ii)(b)

term “bank” is defined in the regulation as

1.882-5T(b)(2)(ii)). The adjusted basis

and the principles of Regulations section

a bank that meets the statutory definition

method election is subject to the minimum

1.864-4(c)(5)(ii).

applicable to domestic banks (except for

five-year period described in Temporary

the fact the corporation is foreign) and

Line 3c, column (a). Total other

Regulations section 1.882-5T(a)(7). The

without regard to whether the

non-ECI assets. Enter on line 3c,

fair market value method cannot be

corporation’s required banking activities

column (a), all other assets (or portion

changed to the adjusted basis method

are effectively connected with its trade or

thereof) included on line 2, column (a)

without advance consent from the

business within the United States. The

that give rise to domestic or foreign

Commissioner or his delegate.

required banking activities need only be

source non-ECI. If income from a security

Line 2, column (a). Total assets per

conducted on a worldwide basis. To

is treated as partially ECI and partially

books. Enter the total average assets

qualify as a bank for interest expense

non-ECI under Regulations section

derived from the combined set or set(s) of

allocation purposes, the foreign

1.864-4(c)(5)(ii), enter the amount of the

books that are reportable on Schedule L.

corporation must be subject to bank

asset on line 3, column (c) in the

The total average assets includes

regulatory supervision and examination in

proportion that the income, gain, or loss

interbranch balances with other set(s) of

its home country of a type similar to that

from such asset that is treated as

books of the corporation that are not

required of domestic banks by a State or

non-ECI bears to the total income, gain,

reportable on Schedule L.

Federal authority having supervision over

or loss from such asset. Do the same for

banking institutions, and a substantial

Line 3a, column (a). Total interbranch

the non-ECI portion of any asset whose

amount of the corporation’s business

assets. Enter on line 3a, column (a), the

income is allocated under the proposed

must consist of receiving deposits and

total of the corporation’s average

global dealing regulations or under an

making loans and discounts, or of

interbranch assets included on line 2,

Advance Pricing Agreement pursuant to a

exercising fiduciary powers similar to

column (a). The average interbranch

competent authority agreement. See

those permitted to national banks under

assets recorded on the set(s) of Schedule

Proposed Regulations sections

authority of the Comptroller of the

L books do not create U.S. assets under

1.884-1(d)(2)(vii) and 1.884-1(d)(2)(xi),

Currency. See sections 581 and 585(a).

Regulations section 1.882-5(b)(1)(iv) and

Example 8.

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Instructions For Schedule I (Form 1120-F) - 2007 Page 3

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