2008 Instruction 1120-F Schedule H
Department of the Treasury
Internal Revenue Service
2008
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
expense, allocated and apportioned
a U.S. permanent establishment and
Revenue Code unless otherwise noted.
to ECI and non-ECI. Interest expense
applies OECD Transfer Pricing
of a foreign corporation is allocated to
Guidelines principles in lieu of the
ECI exclusively (except to the extent
ECI and expense allocation and
provided in certain tax treaties) under
apportionment rules of section 882(c)
What's New
the rules provided in Regulations
and Regulations sections 1.861-8 and
·
The schedule has been
section 1.882-5 and Temporary
1.861-17 and Temporary Regulations
streamlined. The changes resulted in
Regulations section 1.882-5T and is
section 1.861-8T. This treaty-based
a net reduction of one line.
reported on Schedule I (Form
reporting is permitted only if the
·
A "divide-by" convention is now
1120-F). See Temporary Regulations
applicable income tax treaty and
used on new lines 15 and 17. A
section 1.882-5T(a)(2). Bad debt
accompanying documents (such as
"multiply-by" convention was used on
expense allocated to ECI is reported
Exchange of Notes) expressly
the corresponding lines of last year's
directly on Form 1120-F, Section II,
provide that attribution of profits is
schedule.
line 15.
determined under the OECD Transfer
Pricing Guidelines principles applied
by analogy (e.g., see Article 7 and the
Purpose of Schedule
accompanying Exchange of Notes to
Schedule H (Form 1120-F) is used by
General Instructions
the 2001 United States-United
a foreign corporation that files Form
Regulations section 1.861-8.
Kingdom and 2003 United
1120-F to report the amount of the
Under section 882(c), a foreign
States-Japan Income Tax Treaties).
foreign corporation's deductible
corporation's expenses are
See the instructions for Schedule M-3
expenses that are allocated and
deductible against its U.S. taxable
(Form 1120-F) for the reporting of
apportioned under Regulations
income only if they are connected
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
principles.
The proper allocation and
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 Home Office
Any foreign corporation that is
apportionment of research and
required to file Form 1120-F and is
Deductible Expenses
experimentation expenses at
(or is treated as) engaged in a trade
Regulations section 1.861-17. Under
Definitely Related Solely
or business within the United States
these regulations, a taxpayer must
at any time during the tax year must
to ECI or Non-ECI
allocate deductions to the class of
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
Protective returns. If the foreign
necessary, apportion deductions
and bad debt expense, recorded on
corporation files a protective Form
among the groups of income included
the corporation's home office books;
1120-F under Regulations section
in the class. Generally, deductions
to report adjustments made to
1.882-4(a)(3)(vi), Schedule H need
are allocated and apportioned on the
determine the amounts that are
not be completed or attached to the
basis of the factual relationship
deductible for U.S. tax purposes; and
protective Form 1120-F.
between the deduction and gross
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
Cat. No. 50605P
expenses allocated and apportioned
and apportioned to ECI are reported
263(g), depreciation and
under Regulations sections 1.861-8
on line 19. If the corporation uses
amortization, general loan loss
and 1.861-17 and Temporary
management cost accounting
reserves).
Regulations section 1.861-8T.
statements for its home office books
3. Permanent differences (e.g.,
Deductions reported on home office
that include expenses of one or more
interbranch transactions other than
books may include expenses incurred
disregarded entities, and also
interest, non-deductible meals and
outside the foreign corporation's
maintains certified audited
entertainment and executive salary
home country (other than in the
third-country GAAP statements for a
compensation).
United States). Home office
disregarded entity, the expenses of
If the corporation is a foreign bank
deductions do not include deductions
the disregarded entity must be
that charges its U.S. branch office
that are reported on books and
included in line 1 in either U.S. dollars
cost reimbursements for services and
records used to complete Form
or the home office's functional
overhead which are booked by the
1120-F, Schedule L ("Schedule L
currency even if the audited
branch in the third party category of
books"). Schedule L books are the
third-country GAAP statements are in
expense actually incurred rather than
set or sets of books of the
another non-dollar functional
as a lump sum interbranch amount,
corporation's U.S. trade or business
currency.
list the adjustment for each third party
or books of its U.S. branch (whether
Line 2. Enter on line 2 the total of
category expense separately on the
maintained within or outside the
the adjustments necessary to
attachment for permanent
United States) as defined in
conform the amounts on line 1 to the
differences.
Regulations section 1.882-5(d)(2).
amounts that are deductible for U.S.
Line 3. Combine lines 1 and 2 and
tax purposes. These adjustments
Part I may be completed in U.S.
enter the result on line 3. The amount
include temporary and permanent
dollars or in the foreign corporation's
reported on line 3 is the total amount
differences of the type applicable in
functional currency. If the corporation
of deductible expenses (determined
determining the deductions of U.S.
completes Part I in U.S. dollars,
under U.S. tax principles before
corporations that file their income tax
check the box in the Part I heading. If
apportionment between ECI and
returns on Form 1120 (e.g.,
the corporation completes Part I in its
non-ECI) of the foreign corporation
adjustments eliminating any line 1
foreign functional currency, specify
that files Form 1120-F, other than
expenses of entities whose expenses
the currency in the space provided in
those that are included on the
are includible in the corporation's
the Part I heading.
corporation's Schedule L books.
expenses for book purposes but not
Line 1. Enter on line 1 the total
Line 4. Enter on line 4 the total
for U.S. tax purposes). In addition,
expenses recorded on the
amount of interest expense (including
include adjustments to loan losses
non-Schedule L books and records of
interbranch interest), if any, recorded
and loss reserves included in line 1
the home office (including books and
on the home office books that is
expenses to reflect the amount of bad
records maintained in locations
included on line 3.
debt expense that is deductible for
outside the United States other than
U.S. tax purposes. Such adjustments
Line 5. Enter on line 5 the bad debt
in the corporation's home country).
include any amount of bad debt
expense, if any, that is included on
The books and records may be home
expense included in line 1 that is
line 3. Any portion of the amount
office records (e.g., management cost
treated as an involuntary charge-off
included on line 5 that is allocable to
accounting reports) that identify only
under Regulations section
ECI is reported directly on Form
the expenses included in the
1.166-2(d)(2). The deductible amount
1120-F, Section II, line 15.
corporation's financial statements for
of bad debt expense remaining after
Line 7. Subtract line 6 from line 3
the tax year. It is not necessary that
any adjustments on line 2 is
and enter the difference on line 7.
the home office records or reports
eliminated from Schedule H
This is the total amount of the
used also include items of income,
expenses on line 5.
corporation's home office deductions
gain or loss (including bad debt
which are allocated and apportioned
Do not allocate and apportion
charge-offs), or financial transaction
between ECI and non-ECI in Parts I
expenses to ECI and non-ECI on
expenses such as interest expense
and II of Schedule H.
line 2. In addition, do not make
and periodic notional principal
adjustments on line 2 to reflect
Lines 8 through 10. The amounts
contract expense. Alternatively, the
book-to-tax adjustments for any home
reported on lines 8 through 10 are
expenses reported on line 1 may be
office interest expense (including
deductions that are definitely related
derived from audited or unaudited
interbranch interest expense)
to non-ECI under Regulations
financial statements. The home office
included on line 1. Interest expense
sections 1.861-8 and 1.861-17 and
books may be books recorded under
included on line 1 is adjusted on line
Temporary Regulations section
the Generally Accepted Accounting
4. The allocation of deductible
1.861-8T. If the corporation has
Principles ("GAAP") applicable to the
interest expense to ECI is reported on
deductions included in line 7 that are
corporation's local accounting
Schedule I (Form 1120-F). Attach a
definitely related and allocable to ECI
practices or under U.S. GAAP, at the
schedule listing the amount of the
that is exempt from tax under the
corporation's choosing. Expenses of
adjustment for each of the following
Code or an income tax treaty, the
other includible entities (i.e.,
categories:
deductions should be treated as
disregarded entities) are included in
allocable to non-ECI for purposes of
home office expenses reported on
1. Expenses included on line 1 of
Schedule H and included in the
line 1 only if the expenses of such
entities whose expenses are not
amounts reported on lines 8 through
other entities are recorded on the
includible in the corporation's
10.
home office's books. Expenses
expenses for U.S. tax purposes.
recorded on non-Schedule L books of
2. Temporary differences (e.g.,
Line 8. Enter on line 8 deductions
disregarded entities (and not on the
costs capitalized under section 263A,
included on line 7 that are definitely
home office books) that are allocated
carrying charges under section
related to non-ECI received from
-2-
Instructions for Schedule H (Form 1120-F)
subsidiaries (other than disregarded
Foreign banks record such non-ECI
If the corporation reports amounts
entities whose income and
on Schedule M-3 (Form 1120-F), Part
in Part I in U.S. dollars, leave line 14
deductions are treated as income and
I, line 5 only if the entity's sets of
blank.
deductions of the corporation filing
books are reportable on Form
Line 15. Enter on line 15 the amount
Form 1120-F). See, for example,
1120-F, Schedule L.) See instructions
on line 13, converted if necessary to
Temporary Regulations section
for Schedule M-3 (Form 1120-F), Part
U.S. dollars. If the amount on line 13
1.861-8T(e)(4)(ii) and Regulations
I.
is stated in the corporation's foreign
section 1.861-17 (relating to
Line 11. Enter on line 11 the portion
functional currency, divide line 13 by
treatment of stewardship expenses
of the deductions included on line 7
the line 14 exchange rate and enter
attributable to dividends and research
that is definitely related to ECI under
the result on line 15.
and experimentation expenses).
Regulations sections 1.861-8 and
Line 16. Enter on line 16 the amount
1.861-17 and Temporary Regulations
Line 9. Enter on line 9 deductions
of deductions included on line 15 that
section 1.861-8T. Deductions
included on line 7 (other than
is apportioned to ECI under
definitely related to ECI may include
amounts included on line 8) that are
Regulations sections 1.861-8 and
specifically identifiable personnel and
definitely related under Regulations
1.861-17 and Temporary Regulations
other associated costs incurred in the
sections 1.861-8 and 1.861-17 and
section 1.861-8T. Attach a schedule
home office with respect to persons
Temporary Regulations section
describing the apportionment
who work on the evaluation and
1.861-8T to non-ECI of the
methods used, identifying the
approval of ECI-producing activities
corporation that is booked in the
numerator and denominator of any
of the corporation's trade or business
corporation's home office and in other
ratio-based method, and listing the
within the United States (e.g.,
locations in the corporation's home
amount apportioned under each
specifically identifiable home office
country. For example, line 9 includes
method to ECI.
deductions incurred for the evaluation
deductions included on line 7 that are
and approval of U.S. loans to
definitely related to non-ECI of a
Line 17. Enter on line 17 the amount
customers negotiated and solicited by
banking corporation that is booked in
entered on line 11, converted if
the corporation's U.S. branch office
the corporation's home office and in
necessary to U.S. dollars. If the
where a banking, financing, or similar
its retail banking branches in the
amount on line 11 is stated in the
business is carried on). Also include
corporation's home country. The
corporation's foreign functional
on line 11 deductible research and
amount of any inter-office or
currency, divide line 11 by the line 14
experimentation expenditures that are
interbranch charges from the home
exchange rate and enter the result on
definitely related to ECI under
office to various locations and
line 17.
Regulations section 1.861-17 and
departments recorded on the home
Line 18. Add lines 16 and 17 and
deductible charitable contributions
office books as home office "service"
enter the total on line 18. The amount
that are included on line 7.
fees for internal management or
on line 18 is the total amount of
home office tax accounting purposes
deductible expenses reported on the
(which amounts are eliminated on line
Part II Home Office
home office books that is allocated
2) is not determinative of the amount
and apportioned to ECI under
Deductible Expenses
of the home office's deductible
Regulations sections 1.861-8 and
expense that is definitely related to
Allocated and
1.861-17 and Temporary Regulations
non-ECI.
section 1.861-8T.
Apportioned to ECI
Line 10. Enter on line 10
Line 19. Enter on line 19, in U.S.
deductions included on line 7 (other
Line 13. Subtract line 12 from line 7
dollars, the amount of deductible
than amounts included on line 8) that
and enter the difference on line 13.
expenses allocated and apportioned
are definitely related to non-ECI of
The amount on line 13 is the residual
to ECI under Regulations sections
the corporation that is booked in
amount of the deductions entered on
1.861-8 and 1.861-17 and Temporary
locations outside the corporation's
line 7 that is not definitely related
Regulations section 1.861-8T that is
home country (including the United
solely to the corporation's ECI or
recorded on non-Schedule L books
States). For example, if a banking
non-ECI. The amount on line 13 is
and records of foreign locations other
corporation conducts global banking
subject to apportionment under
than those of the home office. Attach
operations through branch offices
Regulations sections 1.861-8 and
a schedule listing the amount of
(including through disregarded
1.861-17 and Temporary Regulations
deductions allocated and apportioned
entities) in locations outside the
section 1.861-8T on Part II, line 16.
to ECI from each location.
corporation's home country, the home
Line 14. If the corporation reports
office deductions included on line 7
Line 20. Add lines 18 and 19 and
expenses and deductions in Part I in
that are definitely related to non-ECI
enter the total on line 20. The amount
the corporation's foreign functional
booked in those locations are
entered on line 20 is the total amount
currency, enter the average
reportable on line 10. These
of deductible expenses reported on
exchange rate that is used to convert
deductions include home office
the corporation's non-Schedule L
those deductions to U.S. dollars for
deductions definitely related to
books that is allocated and
purposes of lines 15 and 17. The
non-ECI of disregarded entities,
apportioned to ECI under Regulations
exchange rate must be rounded to at
whether or not the balance sheet
sections 1.861-8 and 1.861-17 and
least five places.
from such entity is reportable on
Temporary Regulations section
Schedule L of Form 1120-F. (For
Note. You must round the result to
1.861-8T. This amount is also
corporations other than banks, such
more than five places if failure to do
reported on Form 1120-F, Section II,
non-ECI may be reflected as income
so would materially distort the
line 26, and, for banks only, on
from includible entities on Schedule
exchange rate or the equivalent
Schedule M-3 (Form 1120-F), Part III,
M-3 (Form 1120-F), Part I, line 5.
amount of U.S. dollars.
line 31.
-3-
Instructions for Schedule H (Form 1120-F)
22b, only the numerators of each
If the corporation does not have any
Part III Allocation and
method must be reported on lines 22
interest expense for the year and
and 23. See the instructions for line
does not file Schedule I (Form
Apportionment Methods
22b for disclosure of the gross asset
1120-F), enter the average assets
and Financial Records
ratio by corporations that used the
derived from the beginning and
actual ratio to allocate interest
ending U.S. assets included in the
Used to Complete Parts I
expense under Regulations section
computation of U.S. net equity on
and II
1.882-5 and Temporary Regulations
Form 1120-F, Section III, lines 4a and
section 1.882-5T.
4b. If the corporation is exempt from
Part III is used to identify the income,
the branch profits tax under an
asset, and personnel attributes of the
Line 21a. Enter on line 21a the
applicable income tax treaty and is
U.S. trade or business and to report
corporation's gross ECI reportable on
not required to complete Form
the methodologies and financial
Schedule M-3 (Form 1120-F), Part II,
1120-F, Section III, Part I, the
records used to determine the
line 25, column (e), plus any
average U.S. assets should be
amount of the deductions that are
additional gross income amounts
derived from the beginning and
allocated and apportioned to ECI in
reportable on line 27, column (e). If
ending U.S. assets included on Form
Parts I and II of Schedule H. The
the corporation is not required to and
1120-F, Schedule L.
corporation's ratios of effectively
does not file Schedule M-3 (Form
Line 22b. If the corporation used the
connected gross income, U.S. assets,
1120-F) for the tax year, enter the
worldwide actual ratio under
and U.S. personnel to worldwide
amount of gross income from Form
Regulations section 1.882-5(c)(2) to
gross income, gross assets, and
1120-F, Section II, line 11.
allocate interest expense to ECI,
personnel are reported on lines 21
Line 21b. Enter on line 21b the
enter the amount from Schedule I
through 23. Other ratio-based
corporation's worldwide gross income
(Form 1120-F), line 6b. If the
methods and any non-ratio-based
stated in U.S. dollars. Corporations
corporation did not use the actual
methods the corporation used for the
other than banks enter the worldwide
ratio, but used a worldwide asset ratio
tax year to allocate and apportion
gross income amount from Schedule
to apportion deductions to ECI for
deductions to non-ECI on lines 8
M-3 (Form 1120-F), Part II, line 25,
purposes of Schedule H, Part II, line
through 10 and to ECI on lines 11
column (a), plus any additional gross
16 or 19, enter the worldwide assets
and 19 are identified in attachments
income amounts included on line 27,
used in that ratio. If a worldwide asset
required by the instructions for lines
column (a). However, if the
ratio is not available from either
24 and 25.
corporation's worldwide income is
Schedule I (Form 1120-F), line 6b or
effectively connected to its trade or
Schedule H, Part II, line 16 or 19,
Check Boxes Above Line 21
business within the United States, the
leave line 22b blank.
corporation should instead enter the
New methods. Check the box to
Line 22c. If an amount is entered on
gross income amount from Schedule
indicate if the corporation used a
line 22b, divide line 22a by line 22b to
M-3, Part II, line 25, column (e) (plus
method to allocate and apportion
determine the gross asset ratio and
any additional gross income amounts
deductions for the current tax year
enter the percentage on line 22c. If
included on line 27, column (a)), but
that was not used in the prior year.
line 22b is blank, leave line 22c blank.
only if there are no permanent
Line 23a. Enter on line 23a the
differences for tax-exempt income
Interbranch amounts in Part IV.
number of personnel who worked in
under section 103 or under a treaty
Check the box to indicate if an
the corporation's U.S. trade or
(e.g., force of attraction income not
expense in respect of any amount
business during the tax year. The
attributable to a U.S. permanent
included in Part II, line 20, in the
corporation may use any reasonable
establishment) that would otherwise
home office allocation and
method to determine the number of
be removed in column (c). If the
apportionment was recorded on the
personnel, including data that is
corporation is not required to and
Schedule L books that are used to
already prepared and used by the
does not report worldwide gross
complete Part IV of Schedule H.
corporation for a non-tax business
income in column (a) of Schedule
Include the full amount of the
purpose. For example, if the
M-3 (Form 1120-F), enter the
interbranch charge in Part IV, line 35.
corporation maintains headcount data
worldwide gross income from any
Lines 21 Through 23. Gross
(such as weighted average
other reasonable source. Reasonable
headcount data) in its personnel
Income, Gross Asset, and
sources include worldwide income
records or for other purposes such as
statements used to report allocations
Number of Personnel Ratios
budgeting, planning, and control,
of income or capital to other
The corporation must complete the
such numbers may be used in the
regulatory or non-Federal tax
gross income ratio for line 21 whether
numerator.
authorities or the worldwide income
or not it used such method to allocate
statements that would be used if the
Line 23b. If the corporation used a
and apportion deductions in Parts I
corporation was required to report
ratio based on number of personnel
and II. If the corporation used a gross
worldwide gross income in column (a)
to apportion deductions in Part II, line
asset or number of personnel method
of Schedule M-3 (Form 1120-F).
16 or 19 of Schedule H, enter the
(whether separately or as
worldwide personnel count used in
components of a multi-factor
Line 22a. Enter on line 22a the
the denominator of such ratio on line
method), it must report the attributes
average assets reported on Schedule
23b. If the corporation does not
on lines 22 and 23. If the corporation
I (Form 1120-F), line 5, column (d).
apportion deductions using a number
did not use either the gross asset or
These are the average U.S. assets
of personnel ratio, leave line 23b
the personnel method to allocate and
included in the corporation's
blank.
apportion deductions for the year,
Regulations section 1.882-5 and
then, except as provided for
Temporary Regulations section
Line 23c. If an amount is entered on
worldwide assets reported on line
1.882-5T interest expense allocation.
line 23b, divide line 23a by line 23b to
-4-
Instructions for Schedule H (Form 1120-F)
determine the number of personnel
U.S. GAAP. The Schedule L books
Attach a schedule detailing the
ratio and enter the percentage on line
items adjusted and amounts of each
may include more than one set of
23c. If line 23b is blank, leave line
adjustment.
books, including the set(s) of books of
23c blank.
disregarded entities. See the
Line 32a. Enter on line 32a the
instructions for Schedule M-3 (Form
amount of third-party interest
Line 24. If the corporation used any
1120-F), Part I, lines 4 and 5, for the
expense (whether owed to unrelated
other ratio-based method to allocate
Schedule L treatment of disregarded
or related parties) that is included in
and apportion deductions to ECI and
entities and the combined reporting of
the amount reported on line 31.
non-ECI on line 8, 9, 10, 11, or 19 of
multiple sets of books. These rules
Interest expense is allocated to ECI
Schedule H, attach a schedule
apply to both banks and non-banks
under Regulations section 1.882-5
describing the ratio used on each
for purposes of determining the
and Temporary Regulations section
line. Include the numerator and
1.882-5T and reported on Schedule I
expenses reportable on Schedule H,
denominator of the ratio used for
(Form 1120-F).
line 29. Interbranch income and
each applicable line.
expenses recorded between separate
Line 32b. Enter on line 32b any
Line 25. If the corporation used a
sets of books must be eliminated in
interbranch interest expense that is
non-ratio-based method to allocate
the combined reports.
included in the amount reported on
and apportion deductions to ECI and
line 31.
non-ECI on line 8, 9, 10, 11, or 19 of
Line 30. Enter on line 30 the total of
Schedule H, attach a schedule
Line 33. Enter on line 33 any bad
the adjustments necessary to
describing each such method and the
debt expense that is included in the
conform the amounts on line 29 to the
percentage used, if any, for each
amount reported on line 31. Any
amounts that are deductible for U.S.
applicable line. These may include
portion of the amount eliminated on
tax purposes. See the instructions for
methods for which percentage
line 33 that is allocated and
Part I, line 2, for a general description
allocations to ECI or non-ECI are
apportioned to ECI is reported directly
of the types of temporary and
estimated and documented by
on Form 1120-F, Section II, line 15.
permanent differences that are
questionnaires or home office
Line 34. Enter on line 34 other
reportable as adjustments to the book
department interviews (e.g.,
third-party expenses that are included
expenses in determining current year
estimated percent of time spent by
in the amount reported on line 31 and
tax deductions under U.S. tax
employees of particular home office
that are not allocated and
principles. However, do not include
departments or sub-departments on
apportioned between ECI and
on line 30 any adjustments that are
U.S. trade or business activities).
non-ECI under Regulations sections
otherwise reportable on lines 32a
1.861-8 and 1.861-17 and Temporary
Lines 26 Through 28.
through 35. Specifically, interest
Regulations section 1.861-8T.
Identification of Financial
expense (including interbranch
Periodic expense from a notional
Records Used
interest expense) included on line 29
principal contract is not allocated and
is adjusted instead on lines 32a and
Check the "Yes" or "No" box to
apportioned under Regulations
32b. Bad debt expense included on
indicate whether the types of financial
section 1.861-8 and Temporary
line 29 is adjusted instead on line 33.
books and records indicated were
Regulations section 1.861-8T if the
used to complete Parts I and II of
Other third-party deductible expenses
amount is includible in the profits and
Schedule H.
not allocated or apportioned to ECI
losses of a global dealing operation
and non-ECI under Regulations
and the corporation allocates and
Line 28. If the "Yes" box is checked,
section 1.861-8 are adjusted instead
apportions such amounts under
attach a list of other documentation
on line 34. Interbranch expenses
Proposed Regulations section
used to complete Parts I and II of
(other than interest expense) included
1.863-3(h). Such periodic expense is
Schedule H (e.g., home country
on line 29 (including interbranch book
subject to allocation and
regulatory reports).
charges for home office services
apportionment under Proposed
provided to the U.S. trade or
Regulations section 1.863-3(h) in
Part IV Allocation and
business) are adjusted instead on line
accordance with the principles of
Apportionment of
35. However, if the corporation is a
Proposed Regulations section
foreign bank that charges its U.S.
1.482-8. If such periodic expense is
Expenses on Books and
branch office cost reimbursements for
included in line 29, it should be
Records Used to Prepare
included on line 34 and reported
services and overhead which are
separately on Form 1120-F, Section
booked by the branch in the third
Form 1120-F, Schedule L
II, as either part of the global dealing
party category of expense actually
Use Part IV of Schedule H to report
income reported on Form 1120-F,
incurred rather than as a lump sum
the allocation and apportionment of
Section II, line 10, or as a separately
interbranch amount, the interbranch
deductions recorded on the
identified deduction under Form
amounts charged and recorded by
corporation's Schedule L books, other
1120-F, Section II, line 27.
the U.S. branch Schedule L book
than interest and bad debt expense,
should not be reported on line 35 as
Line 35. Enter on line 35 all
to ECI and non-ECI under
interbranch expenses, but should be
interbranch expenses, other than
Regulations sections 1.861-8 and
left in the third party categories to
interbranch interest expense, that are
1.861-17 and Temporary Regulations
which they are assigned on the U.S.
included in the amount reported on
section 1.861-8T.
books and records. If any such
line 31. The interbranch amounts
Line 29. Enter on line 29 the total
amounts require adjustment for U.S.
reportable on line 35 include home
expenses recorded on the Schedule
tax principles (e.g., meals and
office charges reflected on the
L books.
entertainment at 50%), then such
Schedule L books for home office
adjustment should be shown on line
Note. The Schedule L books may be
management services provided to the
30.
maintained using GAAP other than
U.S. trade or business.
-5-
Instructions for Schedule H (Form 1120-F)
Note. Amounts paid or accrued on
the amount included in line 37 that is
Line 38b. Enter on line 38b all other
the Schedule L books to the home
allocated or apportioned to ECI in
deductions included in the amount
office are not determinative of the
column (a) and the amount allocated
reported on line 37 that are definitely
amount of home office expense
or apportioned to non-ECI in column
related to ECI or non-ECI under
allocated and apportioned to ECI on
(b). Add columns (a) and (b) for each
Regulations sections 1.861-8 and
Schedule H, Part II, line 20.
line and enter the total amount in
1.861-17 and Temporary Regulations
column (c).
section 1.861-8T.
Line 36. Add the amounts on lines
Line 38a. Enter on line 38a the
Line 39. Add lines 38a and 38b and
32a through 35 and enter the total on
amount of derivative transaction
enter the total on line 39 for each of
line 36. This amount reflects the
deductions included in line 37 that are
columns (a) through (c). The amounts
deductions included in line 31 for
definitely related to ECI or non-ECI
on line 39 are the portion of total
which there are special rules to which
under Regulations section 1.861-8
deductions reported on line 37 that
the general allocation and
and Temporary Regulations section
are definitely related to ECI and
apportionment rules under
1.861-8T. Deductions included on line
non-ECI.
Regulations sections 1.861-8 and
38a are periodic expense from
1.861-17 and Temporary Regulations
Line 40. Enter on line 40 the
notional principal contracts that are
section 1.861-8T do not apply.
deductions included in line 37 that are
sourced under Regulations section
apportioned to ECI and non-ECI
Line 37. Subtract the amount on line
1.863-7 with respect to non-dealer
under Regulations sections 1.861-8
36 from the amount on line 31 and
securities hedging transactions or
and 1.861-17 and Temporary
enter the difference on line 37. The
from securities trading or non-global
Regulations section 1.861-8T. The
amount reported on line 37 is
dealing operations. If notional
total on line 40, column (c), must
allocated and apportioned to ECI and
principal contract periodic expense is
equal line 37 minus line 39, column
non-ECI under Regulations sections
allocated and apportioned under the
(c).
1.861-8 and 1.861-17 and Temporary
global dealing rules of Proposed
Regulations section 1.861-8T and
Line 41. Add lines 39 and 40 and
Regulations section 1.863-3(h), such
reconciled on lines 38a through 41.
enter the total on line 41 for each of
amounts should be included on line
columns (a) through (c). The amount
34 and, therefore, are not definitely
entered on line 41, column (a) is the
Lines 38a Through 41.
related to ECI or non-ECI under
total amount of deductions included
Reconciliation of Allocable
Regulations section 1.861-8 and
on line 37 that is allocated and
Expenses on Books Under
Temporary Regulations section
apportioned to ECI. These deductions
Regulations Section 1.861-8
1.861-8T.
are included on Form 1120-F, Section
(from line 37)
Note. Periodic expenses from
II, lines 12, 13, 14, 16, 17, 19 through
notional principal contracts may be
The amount of deductions reported
25, and 27. The total amount on line
allocated and apportioned to ECI and
on line 37 that is allocated and
41, column (c) must equal the amount
non-ECI in accordance with the ECI
apportioned to ECI and non-ECI is
on line 37.
and non-ECI treatment of the item(s)
reported on lines 38a through 41,
the notional principal contract
columns (a) through (c). With respect
hedges.
to each of lines 38a through 41, enter
-6-
Instructions for Schedule H (Form 1120-F)