Form 1120-F Instructions for Schedule H
Instructions for Schedule H (Form 1120-F), Deductions Allocated to Effectively Connected Income Under Regulations Section 1.861-8
Rev. 2023
Related Forms
- Form 1120-F Schedule H - Deductions Allocated to Effectively Connected Income Under Regulations Section 1.861-8
Department of the Treasury
Internal Revenue Service
2023
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
Revenue Code unless otherwise noted.
the rules provided in Regulations
section 1.882-5 and is reported on
Schedule I (Form 1120-F). See
Regulations section 1.882-5(a)(2).
Bad debt expense allocated to ECI is
reported directly on Form 1120-F,
Section II, line 15.
U.S. permanent establishment and
applies OECD Transfer Pricing
Guidelines in lieu of the ECI and
expense allocation and apportionment
rules of section 882(c) and
Future Developments
For the latest information about
developments related to Schedule H
(Form 1120-F) and its instructions,
such as legislation enacted after they
were published, go to
Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations
section 1.861-8T. This treaty-based
reporting is permitted only if the
applicable income tax treaty and
accompanying documents (such as
Exchange of Notes) expressly provide
that attribution of business profits to a
U.S. permanent establishment is
determined under OECD Transfer
Pricing Guidelines applied by analogy.
See the Instructions for Schedule M-3
(Form 1120-F) for the reporting of
book-tax differences in Parts II and III
of that schedule under a treaty-based
return position pursuant to OECD
Transfer Pricing Guidelines. See also
Form 8833, Treaty-Based Return
Position Disclosure Under Section
6114 or 7701(b).
Reporting Foreign Tax Information
From Partnerships. If you received a
Schedule K-3 (Form 1065) from a
partnership that includes foreign tax
information, see the instructions for
Schedule K-3 (Form 1065), Part X,
Section 2 and Section 3, for specific
instructions for reporting expenses on
Schedule H (Form 1120-F).
Purpose of Schedule
Schedule H (Form 1120-F) is used by
a foreign corporation that files Form
1120-F to report the amount of the
foreign corporation's deductible
expenses that are allocated and
apportioned under Regulations
sections 1.861-8 and 1.861-17 and
Temporary Regulations section
1.861-8T between ECI and non-ECI.
The results reported on Schedule H
are included on Form 1120-F,
General Instructions
Regulations section 1.861-8. Under
section 882(c), a foreign corporation's
expenses are deductible against its
U.S. taxable income only if they are
connected with income effectively
connected with the conduct of a trade
or business in the United States
(“ECI”). The proper allocation and
apportionment of deductions for this
purpose is generally determined
under the provisions of Regulations
section 1.861-8 and Temporary
Section II, line 26; and, for banks only,
on Schedule M-3 (Form 1120-F), Part
III, line 31.
Who Must File
Regulations section 1.861-8T, with
special rules for the allocation and
apportionment of research and
Any foreign corporation that is
required to file Form 1120-F and is (or
is treated as) engaged in a trade or
business within the United States at
any time during the tax year must
complete Schedule H and attach it to
its Form 1120-F. Also, any foreign
corporation that is a partner in a
partnership that has deductions
allocated to ECI under Regulations
section 1.861-8 must also complete
Schedule H and attach it to its Form
1120-F.
experimentation expenses at
Regulations section 1.861-17. Under
these regulations, a taxpayer must
allocate deductions to the class of
gross income to which the deduction
is definitely related and then, if
necessary, apportion deductions
among the groups of income included
in the class. Generally, deductions are
allocated and apportioned on the
basis of the factual relationship
Specific Instructions
Part I – Home Office
Deductible Expenses
Definitely Related Solely to
ECI or Non-ECI
between the deduction and gross
income. (Under section 882(c)(1)(B),
charitable contributions that are
Protective returns. If the foreign
corporation files a protective Form
1120-F under Regulations section
1.882-4(a)(3)(vi), Schedule H need
not be completed or attached to the
protective Form 1120-F.
deductible under section 170 reduce
ECI whether or not connected with
such income.) Use Schedule H (Form
1120-F) to report expenses, other
than interest expense and bad debt
expense, allocated and apportioned
to ECI and non-ECI. Interest expense
of a foreign corporation is allocated to
ECI exclusively (except to the extent
provided in certain tax treaties) under
Part I is used to identify the total
expenses, including interest expense
and bad debt expense, recorded on
the corporation's home office books;
to report adjustments made to
Treaty-based return reporting of
business profits attributable to a
U.S. permanent establishment. Do
not complete Schedule H if the
determine the amounts that are
deductible for U.S. tax purposes; and
to report the portion of the adjusted
expenses that are definitely related to
corporation files Form 1120-F
pursuant to an income tax treaty to
report business profits attributable to a
Jul 25, 2023
Cat. No. 50605P
ECI and non-ECI. To the extent
included in the home office records
used to report total home office
expenses, interest expense and bad
debt expense are also identified on
Schedule H and removed from
expenses allocated and apportioned
under Regulations sections 1.861-8
and 1.861-17 and Temporary
Reporting Standards, applicable to
the corporation's local accounting
practices or under U.S. GAAP, at the
corporation's choosing. Expenses of
other includible entities (that is,
expense included on line 1a that is
treated as an involuntary charge-off
under Regulations section 1.166-2(d)
(2). The deductible amount of bad
debt expense remaining after any
adjustments on line 2 is eliminated
from Schedule H expenses on line 5.
Attach a statement listing the
amount of the adjustment for each of
the following categories.
disregarded entities) are included in
home office expenses reported on
line 1a only if the expenses of such
other entities are recorded on the
home office's books. However, if the
home office's books and records are
Regulations section 1.861-8T.
Deductions reported on home office
1. Expenses included on line 1a of
entities whose expenses are not
includible in the corporation's
books may include expenses incurred maintained as part of a foreign
outside the foreign corporation's home consolidated financial statement, the
country (other than in the United
States). Home office deductions do
not include deductions that are
consolidated group's expenses may
be entered on line 1a, although such
amounts are adjusted on line 2. If the
consolidated group's expenses are
used, the taxpayer must attach a
statement listing the foreign
expenses for U.S. tax purposes.
2. Temporary differences (for
example, costs capitalized under
section 263A, carrying charges under
section 263(g), depreciation and
amortization, general loan loss
reserves).
reported on books and records used
to complete Form 1120-F, Schedule L
(“Schedule L books”). Schedule L
books are the set or sets of books of
the corporation's U.S. trade or
consolidated group members.
Expenses recorded on
business or books of its U.S. branch
(whether maintained within or outside
the United States) as defined in
Regulations section 1.882-5(d)(2).
non-Schedule L books of disregarded
entities (and not on the home office
books) that are allocated and
3. Permanent differences (for
example, interbranch transactions
other than interest; non-deductible
meals and entertainment and
apportioned to ECI are reported on
line 19. If the corporation uses
management cost accounting
statements for its home office books
that include expenses of one or more
disregarded entities, and also
maintains certified audited
executive salary compensation).
Part I may be completed in U.S.
dollars or in the foreign corporation's
functional currency. If the corporation
completes Part I in U.S. dollars, check
the box in the Part I heading. If the
corporation completes Part I in its
foreign functional currency, specify the
currency in the space provided in the
Part I heading.
Do not allocate and apportion
expenses to ECI and non-ECI on
line 2. In addition, do not make
adjustments on line 2 to reflect
book-to-tax adjustments for any home
office interest expense (including
interbranch interest expense) included
on line 1a. Interest expense included
on line 1a is adjusted on line 4. The
allocation of deductible interest
expense to ECI is reported on
third-country GAAP (or other
applicable accounting standards)
statements for a disregarded entity,
the expenses of the disregarded entity
must be included on line 1a in either
U.S. dollars or the home office's
functional currency even if the audited
third-country GAAP (or other
Line 1a. Enter on line 1a the total
expenses recorded on the
non-Schedule L books and records of
the home office (including books and
records maintained in locations
outside the United States other than in
the corporation's home country). The
books and records may be home
office records (for example,
Schedule I (Form 1120-F).
If the corporation is a foreign bank
that charges its U.S. branch office
cost reimbursements for services and
overhead which are booked by the
branch in the third-party category of
expense actually incurred rather than
as a lump sum interbranch amount,
list the adjustment for each third-party
category expense separately on the
statement for permanent differences.
applicable accounting standards)
statements are in another non-dollar
functional currency.
Line 2. Enter on line 2 the total of the
adjustments necessary to conform the
amounts on line 1a to the amounts
that are deductible for U.S. tax
management cost accounting reports)
that identify only the expenses
included in the corporation's financial
statements for the tax year. It is not
necessary that the home office
records or reports used also include
items of income, gain or loss
purposes. These adjustments include
temporary and permanent differences
of the type applicable in determining
the deductions of U.S. corporations
that file their income tax returns on
Form 1120 (for example, adjustments
eliminating any line 1a expenses of
entities whose expenses are
Line 3. Combine lines 1a and 2 and
enter the result on line 3. The amount
reported on line 3 is the total amount
of deductible expenses (determined
under U.S. tax principles before
apportionment between ECI and
non-ECI) of the foreign corporation
that files Form 1120-F, other than
those that are included on the
(including bad debt charge-offs), or
financial transaction expenses such
as interest expense and periodic
notional principal contract expense.
Alternatively, the expenses reported
on line 1a may be derived from
audited or unaudited financial
includible in the corporation's
expenses for book purposes but not
for U.S. tax purposes). In addition,
include adjustments to loan losses
and loss reserves included in line 1a
expenses to reflect the amount of bad
debt expense that is deductible for
U.S. tax purposes. Such adjustments
include any amount of bad debt
statements. The home office books
may be books recorded under the
Generally Accepted Accounting
Principles (“GAAP”), or other
corporation's Schedule L books.
Line 4. Enter on line 4 the total
amount of interest expense (including
interbranch interest), if any, recorded
applicable accounting standards,
including International Financial
Instructions for Schedule H (Form 1120-F) (2023)
2
on the home office books that is
included on line 3.
amount of any interoffice or
business is carried on). Also include
on line 11 deductible research and
experimentation expenditures that are
definitely related to ECI under
interbranch charges from the home
office to various locations and
Line 5. Enter on line 5 the bad debt
expense, if any, that is included on
line 3. Any portion of the amount
included on line 5 that is allocable to
ECI is reported directly on Form
1120-F, Section II, line 15.
Line 7. Subtract line 6 from line 3 and
enter the difference on line 7. This is
the corporation's remaining home
office deductions which are to be
allocated and apportioned between
ECI and non-ECI in Parts I and II of
Schedule H.
Lines 8 through 10. The amounts
reported on lines 8 through 10 are
deductions that are definitely related
to non-ECI under Regulations
sections 1.861-8 and 1.861-17 and
Temporary Regulations section
1.861-8T. If the corporation has
deductions included on line 7 that are
definitely related and allocable to ECI
that is exempt from tax under the
Code or an income tax treaty, the
deductions should be treated as
allocable to non-ECI for purposes of
Schedule H and included in the
amounts reported on lines 8 through
10.
departments recorded on the home
office books as home office “service”
Regulations section 1.861-17 and
fees for internal management or home deductible charitable contributions
office tax accounting purposes (which that are included on line 7. Also
amounts are eliminated on line 2) is
include on line 11 deductible research
not determinative of the amount of the and experimentation expenditures that
home office's deductible expense that are definitely related to ECI under
is definitely related to non-ECI.
Regulations section 1.861-17,
deductible charitable contributions
that are included on line 7, and
stewardship expenses, if any.
Line 10. Enter on line 10 all other
deductions included on line 7 that are
definitely related solely to non-ECI of
the corporation (other than amounts
included on lines 8 and 9). For
Part II – Home Office
Deductible Expenses
Allocated and Apportioned
to ECI
example, if a banking corporation
conducts global banking operations
through branch offices (including
through disregarded entities) in
locations outside the corporation's
home country, the home office
Line 13. Subtract line 12 from line 7
and enter the difference on line 13.
The amount on line 13 is the residual
amount of the deductions entered on
line 7 that is not definitely related
solely to the corporation's ECI or
non-ECI. The amount on line 13 is
subject to apportionment under
deductions included on line 7 that are
definitely related to non-ECI booked in
those locations are reportable on
line 10. These deductions include
home office deductions definitely
related to non-ECI of disregarded
entities, whether or not the balance
sheet from such entity is reportable on
Schedule L of Form 1120-F. (For
corporations other than banks, such
non-ECI may be reflected as income
from includible entities on
Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations
section 1.861-8T on Part II, line 16.
Line 14. If the corporation reports
expenses and deductions in Part I in
the corporation's foreign functional
currency, enter the average exchange
rate that is used to convert those
deductions to U.S. dollars for
Line 8. Enter on line 8 deductions
included on line 7 that are definitely
related to non-ECI received from
subsidiaries (other than disregarded
entities whose income and deductions
are treated as income and deductions
of the corporation filing Form 1120-F).
See, for example, Regulations section
1.861-8(e)(4)(ii) and Regulations
section 1.861-17 (relating to treatment
of stewardship expenses and
Schedule M-3 (Form 1120-F), Part I,
line 5. Foreign banks record such
non-ECI on Schedule M-3 (Form
1120-F), Part I, line 5, only if the
entity's sets of books are reportable
on Form 1120-F, Schedule L.) See the
Instructions for Schedule M-3 (Form
1120-F), Part I.
purposes of lines 15 and 17. The
exchange rate must be rounded to at
least five places.
Note. You must round the result to
more than five places if failure to do so
would materially distort the exchange
rate or the equivalent amount of U.S.
dollars.
If the corporation reports amounts
in Part I in U.S. dollars, leave line 14
blank.
Line 15. Enter on line 15 the amount
on line 13, converted if necessary to
U.S. dollars. If the amount on line 13 is
stated in the corporation's foreign
functional currency, divide line 13 by
the line 14 exchange rate and enter
the result on line 15.
Line 11. Enter on line 11 the portion
of the deductions included on line 7
that is definitely related to ECI under
Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations
section 1.861-8T. Deductions
research and experimentation
expenses).
Line 9. Enter on line 9 deductions
included on line 7 (other than amounts
included on line 8) that are definitely
related under Regulations sections
1.861-8 and 1.861-17 and Temporary
Regulations section 1.861-8T to
non-ECI of the corporation that is
booked in the corporation's home
office and in other locations in the
corporation's home country. For
example, line 9 includes deductions
included on line 7 that are definitely
related to non-ECI of a banking
corporation that is booked in the
corporation's home office and in its
retail banking branches in the
definitely related to ECI may include
specifically identifiable personnel and
other associated costs incurred in the
home office with respect to persons
who work on the evaluation and
approval of ECI-producing activities of
the corporation's trade or business
within the United States (for example,
specifically identifiable home office
deductions incurred for the evaluation
and approval of U.S. loans to
Line 16. Enter on line 16 the amount
of deductions included on line 15 that
is allocated and apportioned to ECI
under Regulations sections 1.861-8
and 1.861-17 and Temporary
customers negotiated and solicited by
the corporation's U.S. branch office
where a banking, financing, or similar
corporation's home country. The
Regulations section 1.861-8T. Attach
Instructions for Schedule H (Form 1120-F) (2023)
3
a statement describing the
apportionment methods used,
identifying the numerator and
denominator of any ratio-based
method, and listing the amount
apportioned under each method to
ECI.
Line 17. Enter on line 17 the amount
entered on line 11, converted if
necessary to U.S. dollars. If the
amount on line 11 is stated in the
corporation's foreign functional
currency, divide line 11 by the line 14
exchange rate and enter the result on
line 17.
Line 18. Add lines 16 and 17 and
enter the total on line 18. The amount
on line 18 is the total amount of
deductible expenses reported on the
home office books that is allocated
and apportioned to ECI under
Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations
section 1.861-8T.
Line 19. Enter on line 19, in U.S.
dollars, the amount of deductible
expenses allocated and apportioned
to ECI under Regulations sections
1.861-8 and 1.861-17 and Temporary
Regulations section 1.861-8T that is
recorded on non-Schedule L books
and records of foreign locations other
than those of the home office. Attach
a statement listing the amount of
deductions allocated and apportioned
to ECI from each location.
records used to determine the amount
of the deductions that are allocated
and apportioned to ECI in Parts I and
II of Schedule H. The corporation's
ratios of effectively connected gross
income, U.S. assets, and U.S.
Line 21a. Enter on line 21a the
corporation's gross ECI reportable on
Schedule M-3 (Form 1120-F), Part II,
line 25, column (e), plus any
additional gross income amounts
reportable on line 27, column (e). If
the corporation is not required to and
does not file Schedule M-3 (Form
1120-F) for the tax year, enter the
amount of gross income from Form
1120-F, Section II, line 11.
personnel to worldwide gross income,
worldwide assets, and worldwide
personnel are reported on lines 21
through 23. Other ratio-based
methods and any non-ratio-based
methods the corporation used for the
tax year to allocate and apportion
deductions to non-ECI on lines 8
through 10 and to ECI on lines 11, 16,
and 19 are identified in statements
required by the instructions for lines
24 and 25.
Line 21b. Enter on line 21b the
corporation's worldwide gross income
stated in U.S. dollars. Corporations
other than banks enter the worldwide
gross income amount from
Schedule M-3 (Form 1120-F), Part II,
line 25, column (a), plus any
Check Boxes Above Line 21
additional gross income amounts
included on line 27, column (a).
However, if the corporation's
New methods. Check the box to
indicate if the corporation used a
method to allocate and apportion
deductions for the current tax year
that was not used in the prior year.
Interbranch amounts in Part IV.
Check the box to indicate if an
expense in respect of any amount
included in Part II, line 20, in the home
office allocation and apportionment
was recorded on the Schedule L
books that are used to complete Part
IV of Schedule H. Include the full
amount of the interbranch charge in
Part IV, line 35.
worldwide income is effectively
connected to its trade or business
within the United States, the
corporation should instead enter the
gross income amount from
Schedule M-3, Part II, line 25, column
(e) (plus any additional gross income
amounts included on line 27, column
(a)), but only if there are no permanent
differences for tax-exempt income
under section 103 or under a treaty
(for example, force of attraction
income not attributable to a U.S.
permanent establishment) that would
otherwise be removed in column (c). If
the corporation is not required to and
does not report worldwide gross
income in column (a) of Schedule M-3
(Form 1120-F), enter the worldwide
gross income from any other
Lines 21 Through 23. Gross
Income, Asset, and Number of
Personnel Ratios
The corporation must complete the
gross income ratio for line 21 whether
or not it used such method to allocate
and apportion deductions in Parts I
and II. If the corporation used the
asset or number of personnel method
(whether separately or as
Line 20. Add lines 18 and 19 and
enter the total on line 20. The amount
entered on line 20 is the total amount
of deductible expenses reported on
the corporation's non-Schedule L
books that is allocated and
reasonable source. Reasonable
sources include worldwide income
statements used to report allocations
of income or capital to other
apportioned to ECI under Regulations
sections 1.861-8 and 1.861-17 and
Temporary Regulations section
1.861-8T. This amount is also
reported on Form 1120-F, Section II,
line 26, and, for banks only, on
Schedule M-3 (Form 1120-F), Part III,
line 31.
regulatory or non-federal tax
components of a multi-factor method),
it must report the attributes on lines 22
and 23. If the corporation did not use
either the asset or the personnel
method to allocate and apportion
deductions for the year, then, except
as provided for worldwide assets
reported on line 22b, only the
authorities or the worldwide income
statements that would be used if the
corporation was required to report
worldwide gross income in column (a)
of Schedule M-3 (Form 1120-F).
Worldwide gross income is worldwide
gross receipts less only cost of goods
sold, if applicable.
Part III – Allocation and
Apportionment Methods
and Financial Records
Used to Complete Parts I
and II
numerators of each method must be
reported on lines 22 and 23. See the
instructions for line 22b for disclosure
of the asset ratio by corporations that
used the actual ratio to allocate
interest expense under Regulations
section 1.882-5.
Line 22a. Enter on line 22a the
average assets reported on
Schedule I (Form 1120-F), line 5,
column (d). These are the average
U.S. assets included in the
Part III is used to identify the income,
asset, and personnel attributes of the
U.S. trade or business and to report
the methodologies and financial
corporation's Regulations section
1.882-5 interest expense allocation. If
the corporation does not have any
Instructions for Schedule H (Form 1120-F) (2023)
4
interest expense for the year and does determine the number of personnel
not file Schedule I (Form 1120-F), ratio and enter the percentage on
Line 29. Enter on line 29 the total
expenses recorded on the Schedule L
books.
enter the average assets derived from line 23c. If line 23b is blank, leave
the beginning and ending U.S. assets
included in the computation of U.S.
net equity on Form 1120-F, Section III,
lines 4a and 4b. If the corporation is
exempt from the branch profits tax
under an applicable income tax treaty
and is not required to complete Form
1120-F, Section III, Part I, the average
U.S. assets should be derived from
the beginning and ending U.S. assets
included on Form 1120-F, Schedule L.
line 23c blank.
Note. The Schedule L books may be
maintained using GAAP, or other
applicable accounting standards,
other than U.S. GAAP. The
Line 24. If the corporation used any
other ratio-based method to allocate
and apportion deductions to ECI and
non-ECI on line 8, 9, 10, 11, 16, or 19
of Schedule H, attach a statement
describing the ratio used on each line.
Include the numerator and
Schedule L books may include more
than one set of books, including the
set(s) of books of disregarded entities.
See the Instructions for Schedule M-3
(Form 1120-F), Part I, lines 4 and 5,
for the Schedule L treatment of
denominator of the ratio used for each
applicable line.
Line 25. If the corporation used a
non-ratio-based method to allocate
and apportion deductions to ECI and
non-ECI on line 8, 9, 10, 11, 16, or 19
of Schedule H, attach a statement
describing each such method and the
percentage used, if any, for each
applicable line. These may include
methods for which percentage
disregarded entities and the
Line 22b. If the corporation used the
worldwide actual ratio under
combined reporting of multiple sets of
books. These rules apply to both
banks and non-banks for purposes of
determining the expenses reportable
on Schedule H, line 29. Interbranch
income and expenses recorded
between separate sets of books must
be eliminated in the combined reports.
Regulations section 1.882-5(c)(2) to
allocate interest expense to ECI, enter
the amount from Schedule I (Form
1120-F), line 6b. If the corporation did
not use the actual ratio, but used a
worldwide asset ratio to apportion
deductions to ECI for purposes of
line 11, 16, or 19, enter the worldwide
assets used in that ratio. If a
allocations to ECI or non-ECI are
estimated and documented by
Line 30. Enter on line 30 the total of
the adjustments necessary to conform
the amounts on line 29 to the amounts
that are deductible for U.S. tax
questionnaires or home office
worldwide asset ratio is not available
from either Schedule I (Form 1120-F),
line 6b, or Schedule H, line 11, 16, or
19, leave line 22b blank.
Line 22c. If an amount is entered on
line 22b, divide line 22a by line 22b to
determine the asset ratio and enter
the percentage on line 22c. If line 22b
is blank, leave line 22c blank.
department interviews (for example,
estimated percent of time spent by
employees of particular home office
departments or sub-departments on
U.S. trade or business activities).
purposes. See the instructions for Part
I, line 2, for a general description of
the types of temporary and permanent
differences that are reportable as
adjustments to the book expenses in
determining current year tax
Lines 26 Through 28.
Identification of Financial
Records Used
deductions under U.S. tax principles.
However, do not include on line 30
any adjustments that are otherwise
reportable on lines 32a through 35.
Specifically, third-party interest
expense and interbranch interest
expense included on line 29 is
Check the “Yes” or “No” box to
indicate whether the types of financial
books and records indicated were
used to complete Parts I and II of
Schedule H.
Line 28. If the “Yes” box is checked,
attach a statement listing the other
documentation used to complete
Parts I and II of Schedule H (for
example, home country regulatory
reports or functional analyses).
Line 23a. Enter on line 23a the
number of personnel who worked in
the corporation's U.S. trade or
business during the tax year. The
corporation may use any reasonable
method to determine the number of
personnel, including data that is
already prepared and used by the
corporation for a non-tax business
purpose. For example, if the
adjusted on lines 32a and 32b,
instead of line 30. Bad debt expense
included on line 29 is adjusted on
line 33, instead of line 30. Other
third-party deductible expenses not
allocated or apportioned to ECI and
non-ECI under Regulations section
1.861-8 are adjusted on line 34,
instead of line 30. Interbranch
corporation maintains headcount data
(such as weighted average headcount
data) in its personnel records or for
other purposes such as budgeting,
planning, and control, such numbers
may be used in the numerator.
Line 23b. If the corporation used a
ratio based on number of personnel to
apportion deductions on line 11, 16,
or 19, enter the worldwide personnel
count used in the denominator of such
ratio on line 23b. If the corporation
does not apportion deductions using a
number of personnel ratio, leave
line 23b blank.
Part IV – Allocation and
Apportionment of
expenses (other than interest
Expenses on Books and
Records Used to Prepare
Form 1120-F, Schedule L
expense) included on line 29
(including interbranch book charges
for home office services provided to
the U.S. trade or business) are
Use Part IV of Schedule H to report
the allocation and apportionment of
deductions recorded on the
adjusted on line 35, instead of line 30.
However, if the corporation is a foreign
bank that charges its U.S. branch
office cost reimbursements for
corporation's Schedule L books, other
than interest and bad debt expense,
to ECI and non-ECI under Regulations
sections 1.861-8 and 1.861-17 and
Temporary Regulations section
1.861-8T.
services and overhead which are
booked by the branch in the
third-party category of expense
actually incurred rather than as a lump
sum interbranch amount, the
Line 23c. If an amount is entered on
line 23b, divide line 23a by line 23b to
Instructions for Schedule H (Form 1120-F) (2023)
5
interbranch amounts charged and
recorded by the U.S. branch
income reported on Form 1120-F,
Section II, line 10, or as a separately
identified deduction under Form
1120-F, Section II, line 27.
deductions included on line 37 that
are definitely related to ECI or
non-ECI under Regulations section
1.861-8 and Temporary Regulations
section 1.861-8T. Deductions
included on line 38a are periodic
expense from notional principal
contracts that are sourced under
Regulations section 1.863-7 with
respect to non-dealer securities
hedging transactions or from
Schedule L book should not be
reported on line 35 as interbranch
expenses, but should be left in the
third-party categories to which they
are assigned on the U.S. books and
records. If any such amounts require
adjustment for U.S. tax principles,
then such adjustment should be
shown on line 30.
Line 35. Enter on line 35 all
interbranch expenses, other than
interbranch interest expense, that are
included in the amount reported on
line 31. The interbranch amounts
reportable on line 35 include home
office charges reflected on the
Schedule L books for home office
management services provided to the
U.S. trade or business.
securities trading or non-global
dealing operations. If notional
principal contract periodic expense is
allocated and apportioned under the
global dealing rules of Proposed
Regulations section 1.863-3(h), such
amounts should be included on
line 34 and, therefore, are not
definitely related to ECI or non-ECI
under Regulations section 1.861-8
and Temporary Regulations section
1.861-8T.
Attach a statement detailing the
items adjusted and amounts of each
adjustment.
Line 32a. Enter on line 32a the
amount of third-party interest expense
(whether owed to unrelated or related
parties) that is included in the amount
reported on line 31. Interest expense
is allocated to ECI under Regulations
section 1.882-5 and reported on
Schedule I (Form 1120-F).
Line 32b. Enter on line 32b any
interbranch interest expense that is
included in the amount reported on
line 31.
Note. Amounts paid or accrued on
the Schedule L books to the home
office are not determinative of the
amount of home office expense
allocated and apportioned to ECI on
Schedule H, Part II, line 20.
Line 36. Add the amounts on lines
32a through 35 and enter the total on
line 36. This amount reflects the
deductions included on line 31 for
which there are special rules to which
the general allocation and
Note. Periodic expenses from
notional principal contracts may be
allocated and apportioned to ECI and
non-ECI in accordance with the ECI
and non-ECI treatment of the item(s)
the notional principal contract hedges.
Line 33. Enter on line 33 any bad
debt expense that is included in the
amount reported on line 31. Any
portion of the amount eliminated on
line 33 that is allocated and
apportionment rules under
Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations
section 1.861-8T do not apply.
Line 38b. Enter on line 38b all other
deductions included in the amount
reported on line 37 that are definitely
related to ECI or non-ECI under
Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations
section 1.861-8T.
Line 39. Add lines 38a and 38b and
enter the total on line 39 for each of
columns (a) through (c). The amounts
on line 39 are the portion of total
deductions reported on line 37 that
are definitely related to ECI and
non-ECI.
Line 40. Enter on line 40 the
deductions included on line 37 that
are not definitely related to ECI or
non-ECI that are apportioned to ECI
and non-ECI under Regulations
sections 1.861-8 and 1.861-17 and
Temporary Regulations section
1.861-8T. The total on line 40, column
(c), must equal line 37 minus line 39,
column (c).
Line 37. Subtract the amount on
line 36 from the amount on line 31 and
enter the difference on line 37. The
amount reported on line 37 is
apportioned to ECI is reported directly
on Form 1120-F, Section II, line 15.
Line 34. Enter on line 34 other
third-party expenses that are included
in the amount reported on line 31 and
that are not allocated and apportioned
between ECI and non-ECI under
Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations
section 1.861-8T. Periodic expense
from a notional principal contract is
not allocated and apportioned under
Regulations section 1.861-8 and
Temporary Regulations section
allocated and apportioned to ECI and
non-ECI under Regulations sections
1.861-8 and 1.861-17 and Temporary
Regulations section 1.861-8T and
reconciled on lines 38a through 41.
Lines 38a Through 41.
Reconciliation of Allocable
Expenses on Books Under
Regulations Section 1.861-8
(from line 37)
1.861-8T if the amount is includible in
the profits and losses of a global
dealing operation and the corporation
allocates and apportions such
The amount of deductions reported on
line 37 that is allocated and
apportioned to ECI and non-ECI is
reported on lines 38a through 41,
columns (a) through (c). With respect
to each of lines 38a through 41, enter
the amount included on line 37 that is
allocated or apportioned to ECI in
column (a) and the amount allocated
or apportioned to non-ECI in column
(b). Add columns (a) and (b) for each
line and enter the total amount in
column (c).
amounts under Proposed Regulations
section 1.863-3(h). Such periodic
expense is subject to allocation and
apportionment under Proposed
Regulations section 1.863-3(h) in
accordance with the principles of
Proposed Regulations section
Line 41. Add lines 39 and 40 and
enter the total on line 41 for each of
columns (a) through (c). The amount
entered on line 41, column (a), is the
total amount of deductions included
on line 37 that is allocated and
1.482-8. If such periodic expense is
included on line 31, it should be
included on line 34 and reported
separately on Form 1120-F, Section II,
as either part of the global dealing
Line 38a. Enter on line 38a the
apportioned to ECI. These deductions
are included on Form 1120-F,
amount of derivative transaction
Instructions for Schedule H (Form 1120-F) (2023)
6
Section II, lines 12, 13, 14, 16, 17, 19
through 24, and 27. The total amount
on line 41, column (c), must equal the
amount on line 37.
Instructions for Schedule H (Form 1120-F) (2023)
7