Instructions For Schedule I (Form 1120-F) - 2007 (Page 7 of 8) in pdf

Note. The sum of all U.S. assets in

Schedule L books and reportable on

section 1.861-10T(b) or (c), as limited by

columns (a) through (d) (and in any

Schedule I, line 9, column (c).

Temporary Regulations section

columns shown on any attached separate

1.861-10T(d)(1), shall directly allocate

Line 18b. Worldwide average liabilities

sheets) must equal the total average U.S.

interest expense from such indebtedness

in each separate currency pool. Enter

assets entered on line 5, column (d).

to income from such asset in the manner

on line 18b, the average liabilities

and to the extent provided in Temporary

A transaction that hedges a U.S. asset

(whether or not interest bearing)

Regulations section 1.861-10T.

is taken into account for purposes of

denominated in each separate currency

determining the currency denomination

Note. See Temporary Regulations

pool. In column (a), enter the average

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

section 1.861-10T(d) for rules requiring

worldwide liabilities (whether or not

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

reductions in basis to assets required by

interest bearing) denominated in U.S.

the direct interest allocation rules in

dollars. For all other separate currency

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

Temporary Regulations section

pools, enter the average amount of

currency. Complete line 17b as follows:

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

liabilities (whether or not interest bearing)

Determination of U.S.-connected

Temporary Regulations section

denominated in the currency of the

liabilities if no U.S. liability reduction

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

currency pool. Do not enter the U.S.

election is made. For each applicable

institutions. Financial institutions are

dollar value of the currency pool for any

column, multiply the U.S. assets on line

permitted to directly allocate interest

column other than column (a). In

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

expense only under the non-recourse

determining the average worldwide

on line 17a and enter the amount on line

indebtedness rules described in

borrowing rate, the liabilities in each

17b. The resulting amount constitutes the

Temporary Regulations section

currency pool include the amounts

U.S.-connected liabilities for each

1.861-10T(b).

recorded on the sets of books reportable

currency pool when the corporation does

on Schedule L and included on Schedule

Line 23. Total interest expense

not make a U.S. liability reduction election

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

allocable to ECI under Regulations

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

average third-party liabilities using the

section 1.882-5. Add lines 21 and 22

and Temporary Regulations section

most frequent averaging period for which

and enter the result on line 23. This result

1.884-1T(e)(3).

data is reasonably available in

is the total amount of interest expense

Determination of U.S.-connected

accordance with the principles of

allocable to ECI, including directly

liabilities if a U.S. liability reduction

Temporary Regulations sections

allocated interest. This allocable amount

election is made. If the corporation

1.882-5T(b)(3) and 1.882-5T(c)(2)(iv).

may not exceed the total interest expense

makes one or more U.S. liability reduction

paid or accrued by the corporation. See

Line 18c. Borrowing rate. Divide line

elections for the tax year under

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

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

Regulations section 1.884-1(e)(3) and

corporation’s total interest expense paid

worldwide borrowing rate for each

Temporary Regulations section

or accrued is less than the amount of

separate currency pool.

1.884-1T(e)(3), the total amount of the

allocation that would result by adding

liability reduction shown on line 7b must

Line 19. Interest expense allocation by

lines 21 and 22, enter such lesser amount

be allocated to each of the separate

separate currency pool. For each

on line 23. The amount entered on line 23

currency pools in proportion to the U.S.

column, multiply the amount on line 17b

is the amount of interest expense taken

assets in each pool. The amount entered

by the borrowing rate on line 18c and

into account for branch-level interest tax

on line 17b for each column is computed

enter the result on line 19. The amount on

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

as:

line 19 is the amount of interest expense

Regulations section 1.884-4(a),

1. The amount on line 16a multiplied

allocable to ECI in each separate

regardless of whether the deductibility of

currency pool.

by the ratio on line 17a, less

such amount is temporarily deferred or

2. The amount of the liability reduction

Line 20. Total interest expense

disallowed for allocation to tax-exempt

election entered on line 7b multiplied by

allocable to ECI under the separate

income (including treaty exempt income).

the proportion that the average U.S.

currency pools method. On line 20,

The amount reportable on line 23 is

assets in the separate currency pool

enter the sum of the amounts in each

reconciled and reported on Form 1120-F,

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

column on line 19 (including amounts

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

separate currencies (i.e., the total

from line 19 of attached schedule, if any).

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

average U.S. assets entered on line 5,

The amount on line 20 is the total amount

(d) and (e).

column (d)).

of interest expense allocable to ECI under

Line 24. Tax-exempt allocations,

the Separate Currency Pools method.

Attach a schedule showing the

deferrals and capitalization of interest

The amount on line 20 does not include

expense allocation from line 23. The

computation and the allocation of the

any amount of interest expense directly

amount of interest expense allocable to

liability reduction election to each

allocable under Temporary Regulations

ECI entered on line 23 is subject to

separate currency pool.

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

additional rules that may defer or disallow

Line 18a. Worldwide book interest

deductibility in whole or in part.

expense for each separate currency

Lines 21 Through 25.

pool. Enter for each column on line 18a,

Line 24a. Tax-exempt allocations.

Summary – Interest

the corporation’s worldwide interest

Enter on line 24a the amount of allocable

expense paid or accrued for the tax year

interest expense on line 23 that is subject

Expense Allocation and

in the separate currency pool. In column

to further allocation and apportionment to

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

Deduction Under

tax-exempt income under section 265 or

interest paid or accrued. For all other

under the provisions of an applicable

Regulations Section

separate currency pools, enter the

income tax treaty. Attach a schedule

worldwide interest expense in the

showing how such allocation between

1.882-5

functional currency of the currency pool.

exempt and non-exempt ECI has been

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

Line 22. Interest expense directly

made. See Regulations section

functional currency pool in column (b) or

allocable under Temporary

1.882-5(a)(5), examples (3) and (4).

for any other non-U.S. dollar currencies

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

Treaty-exempt income may include

for which a separate currency pool

Enter the amount of interest expense

income that is ECI under the force of

allocation is made in additional columns.

directly allocable to ECI under Temporary

attraction principle of section 864(c)(3)

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

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

but which is business profits not

The worldwide interest expense in each

foreign corporation that has a U.S. asset

attributable to a U.S. permanent

currency pool includes interest expense in

and indebtedness that meet the

establishment of the corporation under an

each currency that is recorded on the

requirements of Temporary Regulations

applicable treaty to which Regulations

-7-

Instructions For Schedule I (Form 1120-F) - 2007 Page 7

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