Instructions for Schedule H (Form 1120-F)

Transcription

1 2011 Instructions for Schedule H (Form 1120-F) Deductions Allocated to Effectively Connected Income Under Regulations Section Purpose of Schedule Department of the Treasury Internal Revenue Service Section references are to the Internal applied by analogy. See the Revenue Code unless otherwise noted. Instructions for Schedule M-3 (Form Schedule H (Form 1120-F) is used by 1120-F) for the reporting of book-tax a foreign corporation that files Form differences in Parts II and III of that General Instructions 1120-F to report the amount of the schedule under a treaty-based return foreign corporation s deductible Regulations section position pursuant to OECD Transfer expenses that are allocated and Under section 882(c), a foreign Pricing Guidelines. apportioned under Regulations corporation s expenses are sections and and Note. Examples of income tax deductible against its U.S. taxable Temporary Regulations section treaties that expressly provide the income only if they are connected T between ECI and non-eci. right to determine the attribution of with income effectively connected The results reported on Schedule H business profits to a U.S. permanent with the conduct of a trade or are included on Form 1120-F, Section establishment by application of the business in the United States ( ECI ). II, line 26; and, for banks only, on OECD Transfer Pricing Guidelines The proper allocation and Schedule M-3 (Form 1120-F), Part III, are those with the United Kingdom apportionment of deductions for this line 31. (2004), Japan (2005), Germany purpose is generally determined (2008), Belgium (2008), Canada under the provisions of Regulations Who Must File (2009), Bulgaria (2009), and Iceland Any foreign corporation that is (2009). See Article 7 (Business section and Temporary required to file Form 1120-F and is Profits) and the accompanying Regulations section T, with (or is treated as) engaged in a trade Exchange of Notes. special rules for the allocation and apportionment of research and or business within the United States experimentation expenses at at any time during the tax year must Regulations section Under complete Schedule H and attach it to Specific Instructions these regulations, a taxpayer must its Form 1120-F. allocate deductions to the class of Protective returns. If the foreign Part I Home Office gross income to which the deduction corporation files a protective Form is definitely related and then, if 1120-F under Regulations section Deductible Expenses necessary, apportion deductions (a)(3)(vi), Schedule H need not be completed or attached to the Definitely Related Solely among the groups of income included in the class. Generally, deductions protective Form 1120-F. to ECI or Non-ECI are allocated and apportioned on the Treaty-based return reporting of Part I is used to identify the total basis of the factual relationship business profits attributable to a expenses, including interest expense between the deduction and gross U.S. permanent establishment. Do and bad debt expense, recorded on income. (Under section 882(c)(1)(B), not complete Schedule H if the the corporation s home office books; charitable contributions that are corporation files Form 1120-F to report adjustments made to deductible under section 170 reduce pursuant to an income tax treaty to determine the amounts that are ECI whether or not connected with report business profits attributable to deductible for U.S. tax purposes; and such income.) Use Schedule H (Form a U.S. permanent establishment and to report the portion of the adjusted 1120-F) to report expenses, other applies OECD Transfer Pricing expenses that are definitely related to than interest expense and bad debt Guidelines in lieu of the ECI and ECI and non-eci. To the extent expense, allocated and apportioned expense allocation and included in the home office records apportionment rules of section 882(c) used to report total home office to ECI and non-eci. Interest expense and Regulations sections and expenses, interest expense and bad of a foreign corporation is allocated to and Temporary Regulations debt expense are also identified on ECI exclusively (except to the extent section T. This treaty-based Schedule H and removed from provided in certain tax treaties) under reporting is permitted only if the expenses allocated and apportioned the rules provided in Regulations applicable income tax treaty and under Regulations sections section and is reported on accompanying documents (such as and and Temporary Schedule I (Form 1120-F). See Exchange of Notes) expressly Regulations section T. Regulations section (a)(2). provide that attribution of business Deductions reported on home office Bad debt expense allocated to ECI is profits to a U.S. permanent books may include expenses incurred reported directly on Form 1120-F, establishment is determined under outside the foreign corporation s Section II, line 15. OECD Transfer Pricing Guidelines home country (other than in the Dec 27, 2011 Cat. No P

2 United States). Home office disregarded entities, and also 3. Permanent differences (e.g., deductions do not include deductions maintains certified audited interbranch transactions other than that are reported on books and third-country GAAP (or other interest, non-deductible meals and records used to complete Form applicable accounting standards) entertainment and executive salary 1120-F, Schedule L ( Schedule L statements for a entity, compensation). books ). Schedule L books are the the expenses of the disregarded set or sets of books of the entity must be included in line 1a in If the corporation is a foreign bank corporation s U.S. trade or business either U.S. dollars or the home that charges its U.S. branch office or books of its U.S. branch (whether office s functional currency even if the cost reimbursements for services and maintained within or outside the audited third-country GAAP (or other overhead which are booked by the United States) as defined in applicable accounting standards) branch in the third party category of Regulations section (d)(2). statements are in another non-dollar expense actually incurred rather than functional currency. as a lump sum interbranch amount, Part I may be completed in U.S. list the adjustment for each third party dollars or in the foreign corporation s Line 2. Enter on line 2 the total of category expense separately on the functional currency. If the corporation the adjustments necessary to attachment for permanent completes Part I in U.S. dollars, conform the amounts on line 1a to the differences. check the box in the Part I heading. If amounts that are deductible for U.S. tax purposes. These adjustments Line 3. Combine lines 1a and 2 and the corporation completes Part I in its include temporary and permanent enter the result on line 3. The amount foreign functional currency, specify differences of the type applicable in reported on line 3 is the total amount the currency in the space provided in determining the deductions of U.S. of deductible expenses (determined the Part I heading. corporations that file their income tax under U.S. tax principles before Line 1a. Enter on line 1a the total returns on Form 1120 (e.g., apportionment between ECI and expenses recorded on the adjustments eliminating any line 1a non-eci) of the foreign corporation non-schedule L books and records of expenses of entities whose expenses that files Form 1120-F, other than the home office (including books and are includible in the corporation s those that are included on the records maintained in locations expenses for book purposes but not corporation s Schedule L books. outside the United States other than for U.S. tax purposes). In addition, Line 4. Enter on line 4 the total in the corporation s home country). include adjustments to loan losses amount of interest expense (including The books and records may be home and loss reserves included in line 1a interbranch interest), if any, recorded office records (e.g., management cost expenses to reflect the amount of bad on the home office books that is accounting reports) that identify only debt expense that is deductible for included on line 3. the expenses included in the U.S. tax purposes. Such adjustments Line 5. Enter on line 5 the bad debt corporation s financial statements for include any amount of bad debt expense, if any, that is included on the tax year. It is not necessary that expense included in line 1a that is line 3. Any portion of the amount the home office records or reports treated as an involuntary charge-off included on line 5 that is allocable to used also include items of income, under Regulations section ECI is reported directly on Form gain or loss (including bad debt (d)(2). The deductible amount 1120-F, Section II, line 15. charge-offs), or financial transaction of bad debt expense remaining after expenses such as interest expense Line 7. Subtract line 6 from line 3 any adjustments on line 2 is and periodic notional principal and enter the difference on line 7. eliminated from Schedule H contract expense. Alternatively, the This is the corporation s remaining expenses on line 5. expenses reported on line 1a may be home office deductions which are to derived from audited or unaudited Do not allocate and apportion be allocated and apportioned financial statements. The home office expenses to ECI and non-eci on between ECI and non-eci in Parts I books may be books recorded under line 2. In addition, do not make and II of Schedule H. the Generally Accepted Accounting adjustments on line 2 to reflect Lines 8 through 10. The amounts Principles ( GAAP ), or other book-to-tax adjustments for any home reported on lines 8 through 10 are applicable accounting standards, office interest expense (including deductions that are definitely related including International Financial interbranch interest expense) to non-eci under Regulations Reporting Standards, applicable to included on line 1a. Interest expense sections and and the corporation s local accounting included on line 1a is adjusted on line Temporary Regulations section practices or under U.S. GAAP, at the 4. The allocation of deductible T. If the corporation has corporation s choosing. Expenses of interest expense to ECI is reported on deductions included in line 7 that are other includible entities (i.e., Schedule I (Form 1120-F). Attach a definitely related and allocable to ECI disregarded entities) are included in schedule listing the amount of the that is exempt from tax under the home office expenses reported on adjustment for each of the following Code or an income tax treaty, the line 1a only if the expenses of such categories: deductions should be treated as other entities are recorded on the 1. Expenses included on line 1a allocable to non-eci for purposes of home office s books. Expenses of entities whose expenses are not Schedule H and included in the recorded on non-schedule L books of includible in the corporation s amounts reported on lines 8 through disregarded entities (and not on the expenses for U.S. tax purposes. 10. home office books) that are allocated 2. Temporary differences (e.g., Line 8. Enter on line 8 deductions and apportioned to ECI are reported costs capitalized under section 263A, included on line 7 that are definitely on line 19. If the corporation uses carrying charges under section related to non-eci received from management cost accounting 263(g), depreciation and subsidiaries (other than disregarded statements for its home office books amortization, general loan loss entities whose income and that include expenses of one or more reserves). deductions are treated as income and -2- Instructions for Schedule H (Form 1120-F)

3 deductions of the corporation filing Instructions for Schedule M-3 (Form Line 15. Enter on line 15 the amount Form 1120-F). See, for example, 1120-F), Part I. on line 13, converted if necessary to Regulations section (e)(4)(ii) U.S. dollars. If the amount on line 13 and Regulations section Line 11. Enter on line 11 the portion is stated in the corporation s foreign (relating to treatment of stewardship of the deductions included on line 7 functional currency, divide line 13 by expenses attributable to dividends that is definitely related to ECI under the line 14 exchange rate and enter and research and experimentation Regulations sections and the result on line 15. expenses) and Temporary Regulations section T. Deductions Line 16. Enter on line 16 the amount Line 9. Enter on line 9 deductions definitely related to ECI may include of deductions included on line 15 that included on line 7 (other than specifically identifiable personnel and is apportioned to ECI under amounts included on line 8) that are other associated costs incurred in the Regulations sections and definitely related under Regulations home office with respect to persons and Temporary Regulations sections and and who work on the evaluation and section T. Attach a schedule Temporary Regulations section approval of ECI-producing activities describing the apportionment T to non-eci of the of the corporation s trade or business methods used, identifying the corporation that is booked in the within the United States (e.g., specifically identifiable home office numerator and denominator of any corporation s home office and in other deductions incurred for the evaluation ratio-based method, and listing the locations in the corporation s home and approval of U.S. loans to amount apportioned under each country. For example, line 9 includes customers negotiated and solicited by method to ECI. deductions included on line 7 that are definitely related to non-eci of a the corporation s U.S. branch office Line 17. Enter on line 17 the amount banking corporation that is booked in where a banking, financing, or similar entered on line 11, converted if the corporation s home office and in business is carried on). Also include necessary to U.S. dollars. If the its retail banking branches in the on line 11 deductible research and experimentation expenditures that are amount on line 11 is stated in the corporation s home country. The definitely related to ECI under corporation s foreign functional amount of any inter-office or Regulations section and currency, divide line 11 by the line 14 interbranch charges from the home deductible charitable contributions exchange rate and enter the result on office to various locations and that are included on line 7. line 17. departments recorded on the home office books as home office service Line 18. Add lines 16 and 17 and fees for internal management or Part II Home Office enter the total on line 18. The amount home office tax accounting purposes on line 18 is the total amount of (which amounts are eliminated on line Deductible Expenses deductible expenses reported on the 2) is not determinative of the amount Allocated and home office books that is allocated of the home office s deductible and apportioned to ECI under expense that is definitely related to Apportioned to ECI Regulations sections and non-eci. Line 13. Subtract line 12 from line and Temporary Regulations Line 10. Enter on line 10 all other and enter the difference on line 13. section T. deductions included on line 7 that are The amount on line 13 is the residual amount of the deductions entered on Line 19. Enter on line 19, in U.S. definitely related solely to non-eci of line 7 that is not definitely related dollars, the amount of deductible the corporation (other than amounts solely to the corporation s ECI or expenses allocated and apportioned included on lines 8 and 9). For non-eci. The amount on line 13 is to ECI under Regulations sections example, if a banking corporation subject to apportionment under and and Temporary conducts global banking operations Regulations sections and Regulations section T that is through branch offices (including through disregarded entities) in and Temporary Regulations recorded on non-schedule L books locations outside the corporation s section T on Part II, line 16. and records of foreign locations other home country, the home office than those of the home office. Attach Line 14. If the corporation reports deductions included on line 7 that are a schedule listing the amount of expenses and deductions in Part I in definitely related to non-eci booked deductions allocated and apportioned the corporation s foreign functional in those locations are reportable on to ECI from each location. currency, enter the average line 10. These deductions include exchange rate that is used to convert Line 20. Add lines 18 and 19 and home office deductions definitely those deductions to U.S. dollars for related to non-eci of disregarded enter the total on line 20. The amount purposes of lines 15 and 17. The entities, whether or not the balance entered on line 20 is the total amount exchange rate must be rounded to at sheet from such entity is reportable of deductible expenses reported on least five places. on Schedule L of Form 1120-F. (For the corporation s non-schedule L corporations other than banks, such Note. You must round the result to books that is allocated and non-eci may be reflected as income more than five places if failure to do apportioned to ECI under Regulations from includible entities on Schedule so would materially distort the sections and and M-3 (Form 1120-F), Part I, line 5. exchange rate or the equivalent Temporary Regulations section Foreign banks record such non-eci amount of U.S. dollars T. This amount is also on Schedule M-3 (Form 1120-F), Part reported on Form 1120-F, Section II, I, line 5 only if the entity s sets of If the corporation reports amounts line 26, and, for banks only, on books are reportable on Form in Part I in U.S. dollars, leave line 14 Schedule M-3 (Form 1120-F), Part III, 1120-F, Schedule L.) See the blank. line 31. Instructions for Schedule H (Form 1120-F) -3-

4 Part III Allocation and method must be reported on lines 22 and 23. See the instructions for line Apportionment Methods 22b for disclosure of the asset ratio average assets derived from the and Financial Records by corporations that used the actual beginning and ending U.S. assets ratio to allocate interest expense included in the computation of U.S. Used to Complete Parts I under Regulations section net equity on Form 1120-F, Section and II Line 21a. Enter on line 21a the for the year and does not file Schedule I (Form 1120-F), enter the III, lines 4a and 4b. If the corporation corporation s gross ECI reportable on is exempt from the branch profits tax Part III is used to identify the income, Schedule M-3 (Form 1120-F), Part II, under an applicable income tax treaty asset, and personnel attributes of the line 25, column (e), plus any and is not required to complete Form U.S. trade or business and to report additional gross income amounts 1120-F, Section III, Part I, the the methodologies and financial reportable on line 27, column (e). If average U.S. assets should be records used to determine the the corporation is not required to and derived from the beginning and amount of the deductions that are does not file Schedule M-3 (Form ending U.S. assets included on Form allocated and apportioned to ECI in 1120-F) for the tax year, enter the 1120-F, Schedule L. Parts I and II of Schedule H. The corporation s ratios of effectively amount of gross income from Form Line 22b. If the corporation used the connected gross income, U.S. assets, 1120-F, Section II, line 11. worldwide actual ratio under and U.S. personnel to worldwide Line 21b. Enter on line 21b the Regulations section (c)(2) to gross income, worldwide assets, and corporation s worldwide gross income allocate interest expense to ECI, worldwide personnel are reported on stated in U.S. dollars. Corporations enter the amount from Schedule I lines 21 through 23. Other other than banks enter the worldwide (Form 1120-F), line 6b. If the ratio-based methods and any gross income amount from Schedule corporation did not use the actual non-ratio-based methods the M-3 (Form 1120-F), Part II, line 25, ratio, but used a worldwide asset ratio corporation used for the tax year to column (a), plus any additional gross to apportion deductions to ECI for allocate and apportion deductions to income amounts included on line 27, purposes of line 11, 16, or 19, enter non-eci on lines 8 through 10 and to column (a). However, if the the worldwide assets used in that ECI on lines 11, 16, and 19 are corporation s worldwide income is ratio. If a worldwide asset ratio is not identified in attachments required by effectively connected to its trade or available from either Schedule I the instructions for lines 24 and 25. business within the United States, the (Form 1120-F), line 6b or Schedule corporation should instead enter the H, line 11, 16, or 19, leave line 22b gross income amount from Schedule blank. Check Boxes Above Line 21 M-3, Part II, line 25, column (e) (plus Line 22c. If an amount is entered on New methods. Check the box to any additional gross income amounts line 22b, divide line 22a by line 22b to indicate if the corporation used a included on line 27, column (a)), but determine the asset ratio and enter method to allocate and apportion only if there are no permanent the percentage on line 22c. If line 22b deductions for the current tax year differences for tax-exempt income is blank, leave line 22c blank. that was not used in the prior year. under section 103 or under a treaty (e.g., force of attraction income not Line 23a. Enter on line 23a the Interbranch amounts in Part IV. attributable to a U.S. permanent number of personnel who worked in Check the box to indicate if an establishment) that would otherwise the corporation s U.S. trade or expense in respect of any amount be removed in column (c). If the business during the tax year. The included in Part II, line 20, in the corporation is not required to and corporation may use any reasonable home office allocation and does not report worldwide gross method to determine the number of apportionment was recorded on the income in column (a) of Schedule personnel, including data that is Schedule L books that are used to M-3 (Form 1120-F), enter the already prepared and used by the complete Part IV of Schedule H. worldwide gross income from any corporation for a non-tax business Include the full amount of the other reasonable source. Reasonable purpose. For example, if the interbranch charge in Part IV, line 35. sources include worldwide income corporation maintains headcount data Lines 21 Through 23. Gross statements used to report allocations (such as weighted average Income, Asset, and Number of of income or capital to other headcount data) in its personnel regulatory or non-federal tax records or for other purposes such as Personnel Ratios authorities or the worldwide income budgeting, planning, and control, The corporation must complete the statements that would be used if the such numbers may be used in the gross income ratio for line 21 whether corporation was required to report numerator. or not it used such method to allocate and apportion deductions in Parts I worldwide gross income in column (a) Line 23b. If the corporation used a and II. If the corporation used the of Schedule M-3 (Form 1120-F). ratio based on number of personnel asset or number of personnel method Worldwide gross income is worldwide to apportion deductions on line 11, (whether separately or as gross receipts less only cost of goods 16, or 19, enter the worldwide components of a multi-factor sold, if applicable. personnel count used in the method), it must report the attributes Line 22a. Enter on line 22a the denominator of such ratio on line 23b. on lines 22 and 23. If the corporation average assets reported on Schedule If the corporation does not apportion did not use either the asset or the I (Form 1120-F), line 5, column (d). deductions using a number of personnel method to allocate and These are the average U.S. assets personnel ratio, leave line 23b blank. apportion deductions for the year, included in the corporation s Line 23c. If an amount is entered on then, except as provided for Regulations section interest line 23b, divide line 23a by line 23b to worldwide assets reported on line expense allocation. If the corporation determine the number of personnel 22b, only the numerators of each does not have any interest expense ratio and enter the percentage on line -4- Instructions for Schedule H (Form 1120-F)

5 23c. If line 23b is blank, leave line other than U.S. GAAP. The Schedule adjustment should be shown on line 23c blank. L books may include more than one 30. Line 24. If the corporation used any set of books, including the set(s) of Attach a schedule detailing the other ratio-based method to allocate books of disregarded entities. See the items adjusted and amounts of each and apportion deductions to ECI and instructions for Schedule M-3 (Form adjustment. non-eci on line 8, 9, 10, 11, 16, or F), Part I, lines 4 and 5, for the Schedule L treatment of disregarded Line 32a. Enter on line 32a the of Schedule H, attach a schedule entities and the combined reporting of amount of third-party interest describing the ratio used on each multiple sets of books. These rules expense (whether owed to unrelated line. Include the numerator and apply to both banks and non-banks or related parties) that is included in denominator of the ratio used for the amount reported on line 31. each applicable line. for purposes of determining the Interest expense is allocated to ECI Line 25. If the corporation used a expenses reportable on Schedule H, under Regulations section non-ratio-based method to allocate line 29. Interbranch income and and reported on Schedule I (Form and apportion deductions to ECI and expenses recorded between separate 1120-F). non-eci on line 8, 9, 10, 11, 16, or 19 sets of books must be eliminated in the combined reports. Line 32b. Enter on line 32b any of Schedule H, attach a schedule interbranch interest expense that is describing each such method and the Line 30. Enter on line 30 the total of included in the amount reported on percentage used, if any, for each the adjustments necessary to line 31. applicable line. These may include methods for which percentage conform the amounts on line 29 to the Line 33. Enter on line 33 any bad allocations to ECI or non-eci are amounts that are deductible for U.S. debt expense that is included in the estimated and documented by tax purposes. See the instructions for amount reported on line 31. Any questionnaires or home office Part I, line 2, for a general description portion of the amount eliminated on department interviews (e.g., of the types of temporary and line 33 that is allocated and estimated percent of time spent by permanent differences that are apportioned to ECI is reported directly employees of particular home office reportable as adjustments to the book on Form 1120-F, Section II, line 15. departments or sub-departments on expenses in determining current year Line 34. Enter on line 34 other U.S. trade or business activities). tax deductions under U.S. tax third-party expenses that are included principles. However, do not include Lines 26 Through 28. in the amount reported on line 31 and on line 30 any adjustments that are that are not allocated and Identification of Financial otherwise reportable on lines 32a apportioned between ECI and Records Used through 35. Specifically, third party non-eci under Regulations sections Check the Yes or No box to interest expense and interbranch and and Temporary indicate whether the types of financial interest expense included on line 29 Regulations section T. books and records indicated were is adjusted on lines 32a and 32b, Periodic expense from a notional used to complete Parts I and II of instead of line 30. Bad debt expense principal contract is not allocated and Schedule H. included on line 29 is adjusted on line apportioned under Regulations Line 28. If the Yes box is checked, 33, instead of line 30. Other section and Temporary attach a list of other documentation third-party deductible expenses not Regulations section T if the used to complete Parts I and II of allocated or apportioned to ECI and amount is includible in the profits and Schedule H (e.g., home country non-eci under Regulations section losses of a global dealing operation regulatory reports or functional are adjusted on line 34, and the corporation allocates and analyses). instead of line 30. Interbranch apportions such amounts under expenses (other than interest Proposed Regulations section Part IV Allocation and expense) included on line (h). Such periodic expense is (including interbranch book charges subject to allocation and Apportionment of for home office services provided to apportionment under Proposed Expenses on Books and the U.S. trade or business) are Regulations section (h) in adjusted on line 35, instead of line accordance with the principles of Records Used to Prepare 30. However, if the corporation is a Proposed Regulations section foreign bank that charges its U.S If such periodic expense is Form 1120-F, Schedule L branch office cost reimbursements for included in line 31, it should be Use Part IV of Schedule H to report services and overhead which are included on line 34 and reported the allocation and apportionment of booked by the branch in the third separately on Form 1120-F, Section deductions recorded on the party category of expense actually II, as either part of the global dealing corporation s Schedule L books, other incurred rather than as a lump sum income reported on Form 1120-F, than interest and bad debt expense, interbranch amount, the interbranch Section II, line 10, or as a separately to ECI and non-eci under amounts charged and recorded by identified deduction under Form Regulations sections and the U.S. branch Schedule L book 1120-F, Section II, line and Temporary Regulations should not be reported on line 35 as section T. Line 35. Enter on line 35 all interbranch expenses, but should be interbranch expenses, other than Line 29. Enter on line 29 the total left in the third party categories to interbranch interest expense, that are expenses recorded on the Schedule which they are assigned on the U.S. included in the amount reported on L books. books and records. If any such line 31. The interbranch amounts Note. The Schedule L books may be amounts require adjustment for U.S. reportable on line 35 include home maintained using GAAP, or other tax principles (e.g., meals and office charges reflected on the applicable accounting standards, entertainment at 50%), then such Schedule L books for home office Instructions for Schedule H (Form 1120-F) -5-

6 management services provided to the to each of lines 38a through 41, enter Line 38b. Enter on line 38b all other U.S. trade or business. the amount included in line 37 that is deductions included in the amount Note. Amounts paid or accrued on allocated or apportioned to ECI in reported on line 37 that are definitely the Schedule L books to the home column (a) and the amount allocated related to ECI or non-eci under office are not determinative of the or apportioned to non-eci in column Regulations sections and amount of home office expense (b). Add columns (a) and (b) for each and Temporary Regulations allocated and apportioned to ECI on line and enter the total amount in section T. Schedule H, Part II, line 20. column (c). Line 39. Add lines 38a and 38b and Line 36. Add the amounts on lines Line 38a. Enter on line 38a the enter the total on line 39 for each of 32a through 35 and enter the total on amount of derivative transaction columns (a) through (c). The amounts line 36. This amount reflects the deductions included in line 37 that are on line 39 are the portion of total deductions included in line 31 for definitely related to ECI or non-eci deductions reported on line 37 that which there are special rules to which under Regulations section are definitely related to ECI and the general allocation and and Temporary Regulations section non-eci. apportionment rules under T. Deductions included on line Line 40. Enter on line 40 the Regulations sections and 38a are periodic expense from deductions included in line 37 that are and Temporary Regulations notional principal contracts that are not definitely related to ECI or section T do not apply. sourced under Regulations section non-eci that are apportioned to ECI with respect to non-dealer Line 37. Subtract the amount on line and non-eci under Regulations securities hedging transactions or 36 from the amount on line 31 and sections and and from securities trading or non-global enter the difference on line 37. The Temporary Regulations section dealing operations. If notional amount reported on line 37 is T. The total on line 40, principal contract periodic expense is allocated and apportioned to ECI and column (c), must equal line 37 minus allocated and apportioned under the non-eci under Regulations sections line 39, column (c). global dealing rules of Proposed and and Temporary Line 41. Add lines 39 and 40 and Regulations section (h), such Regulations section T and enter the total on line 41 for each of amounts should be included on line reconciled on lines 38a through 41. columns (a) through (c). The amount 34 and, therefore, are not definitely entered on line 41, column (a) is the related to ECI or non-eci under Lines 38a Through 41. total amount of deductions included Regulations section and on line 37 that is allocated and Reconciliation of Allocable Temporary Regulations section apportioned to ECI. These deductions Expenses on Books Under T. are included on Form 1120-F, Section Regulations Section Note. Periodic expenses from II, lines 12, 13, 14, 16, 17, 19 through (from line 37) notional principal contracts may be 25, and 27. The total amount on line The amount of deductions reported allocated and apportioned to ECI and 41, column (c) must equal the amount on line 37 that is allocated and non-eci in accordance with the ECI on line 37. apportioned to ECI and non-eci is 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. -6- Instructions for Schedule H (Form 1120-F)