Form 2424 - Water'S-Edge Foreign Investment Interest Offset - 2013 Page 2

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Instructions for Form FTB 2424
Water’s-Edge Foreign Investment Interest Offset
General Information
• The creditor can look only to the specific
• Reduced (but not below zero) by any deficit
property (or any lease or other interest
in E&P of such corporation attributable to
Revenue and Taxation Code (R&TC)
therein) as security for payment of
such stock or other equity investment for
Section 24344(c) provides that interest expense
the principal and interest of the loan
such period .
incurred for purposes of foreign investment
and, thus, has no secured interest in
See R&TC Section 24344(c) and the related
(as defined below) may be offset against the
any other property of the borrower
regulations for more information .
foreign dividend deduction allowed under
or the borrower itself with respect to
Specific Line Instructions
R&TC Section 24411 . The foreign investment
repayment of the loan .
interest offset may not exceed the total foreign
Line 2
Even though the above facts and
dividend deduction allowed for the taxable year .
Enter total interest expense for all entities
circumstances are present in substance
Use form FTB 2424, Water’s-Edge Foreign
included in the water’s-edge combined report
as well as form, a deduction for interest
Investment Interest Offset, to compute the
filed pursuant to R&TC Section 25110, net of
will not be considered definitely related to
foreign investment interest offset . The amount
intercompany interest expense .
a specific property where the motive for
of interest expense attributable to foreign
Line 3
structuring the transaction in the manner
investment is equal to the amount of interest
Enter the interest expense specifically
described above was without any economic
expense specifically assigned to foreign
assignable to foreign investments . See R&TC
significance .
investment plus the amount of unassigned
Section 24344(c) and the related regulations
3. Unassigned interest expense
interest expense allocated to foreign
for more information .
Interest expense paid that does not meet
investment . Unassigned interest expense is
Line 4
the above conditions to be assigned, is
allocated by formula . The amount of the offset
Enter the interest expense specifically
unassigned interest expense .
is limited to the lesser of the following:
assignable to domestic investments or other
4. Interest expense on restricted accounts
• The sum of interest expense specifically
property . See R&TC Section 24344(c) and the
Interest expense on restricted accounts is
assigned and interest expense allocated to
related regulations for more information .
interest expense paid on new debt incurred
foreign investment .
Line 11
on or after January 1, 1988, if the proceeds
• The foreign dividend deduction .
Unassigned foreign investment is the average
of the debt are deposited into an account
This limited amount is multiplied by 75%
value of all foreign investment to which interest
that prevents its use for foreign investment
to arrive at the foreign investment interest
is not specifically assigned .
and the account is not, in fact, used for
offset . Interest expense that exceeds the offset
foreign investment . However, debt shall not
Line 12
amount will be subject to the standard interest
be treated as incurred on or after January
Unassigned total assets is the average value of
offset computation of R&TC Section 24344(b) .
1, 1988, if the majority of the proceeds
all the water’s-edge group’s unassigned total
See FTB Notice 2000-9 .
were used to refinance debt incurred prior
assets .
If there is no foreign dividend deduction under
to January 1, 1988, or the debt arises
Line 13
R&TC Section 24411, then no foreign interest
pursuant to a line of credit or similar
In calculating the percentage, do not include
offset computation is necessary .
arrangement .
any foreign investment, and assets to which
A Definitions
5. Total assets
interest expense has been specifically
Total assets means all of the assets of a
assigned .
1. Foreign investment
corporation included in a water’s-edge
Note: If the taxpayer reported the foreign
Foreign investment is stock or other equity
combined report by reason of R&TC
dividend deduction for dividends received from
investment, which is included in total
Section 25110, after the elimination of
foreign investments and foreign construction
assets, regardless of when it was acquired,
intercompany accounts of assets .
projects, the taxpayer must calculate a separate
in the following instances:
6. Average values of assets
foreign investment interest offset for each
• An entity whose dividends would be
An average of values is computed by
component . The two separately calculated
qualifying dividends for purposes of
averaging the value of assets at the
amounts are then added together and entered
R&TC Section 24411 .
beginning and ending of the taxable year .
on Schedule R, Side 1, line 1b .
• A non-affiliated corporation that is
B Asset Values
organized under the laws of a country or
political subdivision of a country other
Assets and stock or other equity investments
than the United States .
with less than 50% ownership are taken into
account at the federal tax book value (original
To determine the asset value for the foreign
cost for federal tax purposes less depreciation,
investment, see Section B “Asset Values .”
amortization, or depletion) .
2. Interest expense assigned to specific
Stock or other equity investments with more
property
than a 50% ownership are taken into account
Interest expense is considered to be related
at the adjusted basis for federal tax purposes if
solely to specific property, if the existence
any of the following apply:
of all of the facts and circumstances
• Increased by the amount of the earnings
described below is established:
and profits (E&P) of such corporation
• The indebtedness on which the interest
attributable to such stock, or other equity
was paid was specifically incurred for
investment and accumulated during
the purpose of purchasing, maintaining,
the period the stock, or other equity
or improving the specific property .
investment was owned by another affiliated
• The proceeds of the borrowing were
corporation .
actually applied to the specified
purpose .
Page 42 Form 100W Booklet 2013

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