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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 the rules provided in Regulations U.S. permanent establishment and
Revenue Code unless otherwise noted. section 1.882-5 and is reported on applies OECD Transfer Pricing
Schedule I (Form 1120-F). See Guidelines in lieu of the ECI and
Future Developments Regulations section 1.882-5(a)(2). expense allocation and apportionment
For the latest information about Bad debt expense allocated to ECI is rules of section 882(c) and
developments related to Schedule H reported directly on Form 1120-F, Regulations sections 1.861-8 and
(Form 1120-F) and its instructions, Section II, line 15. 1.861-17 and Temporary Regulations
such as legislation enacted after they section 1.861-8T. This treaty-based
were published, go to Purpose of Schedule reporting is permitted only if the
IRS.gov/Form1120F. Schedule H (Form 1120-F) is used by applicable income tax treaty and
a foreign corporation that files Form accompanying documents (such as
General Instructions 1120-F to report the amount of the Exchange of Notes) expressly provide
foreign corporation's deductible that attribution of business profits to a
Regulations section 1.861-8. Under expenses that are allocated and U.S. permanent establishment is
section 882(c), a foreign corporation's apportioned under Regulations determined under OECD Transfer
expenses are deductible against its sections 1.861-8 and 1.861-17 and Pricing Guidelines applied by analogy.
U.S. taxable income only if they are Temporary Regulations section See the Instructions for Schedule M-3
connected with income effectively 1.861-8T between ECI and non-ECI. (Form 1120-F) for the reporting of
connected with the conduct of a trade The results reported on Schedule H book-tax differences in Parts II and III
or business in the United States are included on Form 1120-F, of that schedule under a treaty-based
(“ECI”). The proper allocation and Section II, line 26; and, for banks only, return position pursuant to OECD
apportionment of deductions for this on Schedule M-3 (Form 1120-F), Part Transfer Pricing Guidelines. See also
purpose is generally determined III, line 31. Form 8833, Treaty-Based Return
under the provisions of Regulations Position Disclosure Under Section
section 1.861-8 and Temporary 6114 or 7701(b).
Who Must File
Regulations section 1.861-8T, with
special rules for the allocation and Any foreign corporation that is Reporting Foreign Tax Information
apportionment of research and required to file Form 1120-F and is (or From Partnerships. If you received a
experimentation expenses at is treated as) engaged in a trade or Schedule K-3 (Form 1065) from a
Regulations section 1.861-17. Under business within the United States at partnership that includes foreign tax
these regulations, a taxpayer must any time during the tax year must information, see the instructions for
allocate deductions to the class of complete Schedule H and attach it to Schedule K-3 (Form 1065), Part X,
gross income to which the deduction its Form 1120-F. Also, any foreign Section 2 and Section 3, for specific
is definitely related and then, if corporation that is a partner in a instructions for reporting expenses on
necessary, apportion deductions partnership that has deductions Schedule H (Form 1120-F).
among the groups of income included allocated to ECI under Regulations
in the class. Generally, deductions are section 1.861-8 must also complete
allocated and apportioned on the Schedule H and attach it to its Form Specific Instructions
basis of the factual relationship 1120-F.
Part I – Home Office
between the deduction and gross Protective returns. If the foreign
Deductible Expenses
income. (Under section 882(c)(1)(B), corporation files a protective Form
charitable contributions that are 1120-F under Regulations section Definitely Related Solely to
deductible under section 170 reduce 1.882-4(a)(3)(vi), Schedule H need ECI or Non-ECI
ECI whether or not connected with not be completed or attached to the Part I is used to identify the total
such income.) Use Schedule H (Form protective Form 1120-F. expenses, including interest expense
1120-F) to report expenses, other and bad debt expense, recorded on
Treaty-based return reporting of
than interest expense and bad debt the corporation's home office books;
business profits attributable to a
expense, allocated and apportioned to report adjustments made to
U.S. permanent establishment. Do
to ECI and non-ECI. Interest expense determine the amounts that are
not complete Schedule H if the
of a foreign corporation is allocated to deductible for U.S. tax purposes; and
corporation files Form 1120-F
ECI exclusively (except to the extent to report the portion of the adjusted
pursuant to an income tax treaty to
provided in certain tax treaties) under expenses that are definitely related to
report business profits attributable to a
Jul 25, 2023 Cat. No. 50605P
