Schedule L—Balance Sheets per Books

Balance Sheets per Books The balance sheet assets, liabilities, and equity amounts required to be reported on Schedule L are either the worldwide assets, liabilities, and equity of the corporation, or, at the taxpayer’s election, the set(s) of books that contains assets located in the United States and other assets used in the trade or business conducted in the United States. See Regulations section 1.6012-2(g)(1)(iii). If a corporation (including a foreign bank) chooses worldwide reporting on Schedule L, the profit and loss results from the same set(s) of books must be used to report the adjusted worldwide net income (loss) results in Part I, line 11, of Schedule M-3 (Form 1120-F).

Set(s) of books based on Regulations section 1.882-5(d) (2). If the corporation chooses to limit the Schedule L reporting to the books that give rise to ECI from assets located in the United States and other assets used in the trade or business conducted in the United States, the total assets, liabilities, and equity on the set(s) of books that contain these characteristics must be reported on Schedule L. These are the total assets, liabilities, and equity amounts reflected on the same set(s) of books that gives rise to U.S. ECI and U.S. booked liabilities (as defined in Regulations sections 1.882-5(d)(2)(ii)(A) (foreign corporations other than banks) and 1.882-5(d)(2)(iii) (foreign banking corporations)).

The set(s) of books required to be reported on Schedule L by a foreign bank are the same set(s) of books the foreign bank must use to derive the net book income on Schedule M-3 (Form 1120-F), Part I, line 11. The total assets and liabilities required to be reported include the interbranch assets and liabilities and the noneffectively connected assets reflected on such books. The set(s) of books that gives rise to U.S. booked liabilities under Regulations section 1.882-5(d)(2) will generally be the set(s) of books maintained within the United States by the corporation’s U.S. trade or business. However, one or more sets of books required to be reported on Schedule L do not have to be maintained within the United States so long as the totality of the books reflects a substantial ECI activity that gives rise to inclusion of the books’ third-party liabilities as U.S. booked liabilities under Regulations section 1.882-5(d)(2). This determination is made under the facts and circumstances pertaining to materiality of the ECI activities reflected on the set(s) of books in accordance with the requirements of the interest expense allocation regulations. See Regulations section 1.882-5(d)(6), example 5. This standard is used to determine U.S. booked liability qualification regardless of whether the foreign corporation uses the Adjusted U.S. Booked Liabilities Method or the Separate Currency Pools Method to allocate interest expense under Regulations section 1.882-5.

34 Instructions for Form 1120-F (2025)

A Schedule L set of books does not include a book whose only assets are those that give rise to ECI under section 864(c) (6) or (c)(7). A set of books that has only ECI assets under section 864(c)(6) and (c)(7) is not a set of books that gives rise to U.S. booked liabilities under the applicable test for a bank or a corporation other than a bank in Regulations section 1.882-5(d) (2). Books and records of this type are generally books maintained in a foreign location that include assets either originated through the material activities of the U.S. trade or business or assets formerly held in connection with a U.S. trade or business that are no longer held or used for that purpose. Transferred assets from a set of books of the U.S. trade or business will generally reflect assets described in section 864(c) (6) or (c)(7). See Regulations section 1.884-1(d)(2)(xi), example 5. Securities that are attributable to a U.S. office of a banking, financing, or similar business that are transferred to a foreign location of a continuing U.S. banking office remain attributable to such U.S. office under Regulations section 1.864-4(c)(5)(iii) and do not constitute assets described in section 864(c)(6) or (c)(7). However, a foreign set of books and records that reflects securities of a banking, financing, or similar business that gives rise to ECI may or may not constitute books that give rise to U.S. booked liabilities under the facts and circumstances. Generally, a relatively small number of securities reflected on the books and records of the home office of a foreign bank that reflects predominantly noneffectively connected assets of the same type will not cause the foreign book to give rise to U.S. booked liabilities under Regulations section 1.882-5(d)(2)(iii).

If the foreign corporation has more than one set of books and records that give rise to U.S. booked liabilities under Regulations section 1.882-5(d)(2), it must report the combined amounts shown on all such books and records on Schedule L. For example, the books and records of a foreign insurance company required to file Form 1120-F include, but are not limited to, amounts reported on statements (for example, NAIC statements) filed with a domestic state insurance authority. If a foreign bank maintains a consolidation of two or more sets of books that collectively give rise to U.S. booked liabilities, the corporation may report the financial consolidation of such set of books on Schedule L. See Regulations section 1.882-5(d)(6), example 5. However, if the foreign corporation has a set of books from a disregarded entity that is not included in a U.S. trade or business consolidation and such other set of books gives rise to U.S. booked liabilities under Regulations section 1.882-5(d)(2), then such set of books must be included in the consolidation of books reported on Schedule L. Combined books reported on Schedule L must be adjusted to eliminate transactions recorded between the reportable books. However, amounts recorded between the set(s) of books and other divisions of the foreign corporation or disregarded entities whose books do not give rise to U.S. booked liabilities are not eliminated unless the taxpayer chooses worldwide reporting under the general rule in Regulations section 1.6012-2(g)(1)(iii).

Line 1. Cash. Corporations other than banks include certificates of deposit as cash on line 1. Foreign banks include certificates of deposit as current or non-current assets, as the case may be, in their appropriate interbranch, U.S. asset, or non-U.S. asset categories.

Line 5. Tax-exempt securities. Include:

• State and local government obligations, the interest on which is excludable from gross income under section 103(a); and

• Stock in a mutual fund or other RIC that distributed exempt-interest dividends during the tax year of the corporation.

Line 6. Current assets. On line 6a, enter all current interbranch assets (in accordance with the corporation’s accounting practices) reflected on the combined sets of books that are transacted with other books of the corporation that are not reportable on Schedule L (including books of disregarded

entities, if applicable). On line 6b, enter the current non-U.S. assets on the sets of books reportable on Schedule L. Non-U.S. assets are third-party assets (whether with related or unrelated parties) that give rise only to noneffectively connected income. On line 6c, enter the current U.S. assets on the Schedule L reportable books. U.S. assets are assets that give rise to ECI and constitute U.S. assets in whole or in part under Regulations section 1.884-1(d). Enter assets held for trading or dealing to customers in the applicable category on line 6. Attach a statement to indicate the amount for each category of current assets included on line 6, such as money market deposits of banks, trading assets held for the taxpayer’s own account, and dealing assets held for customers including amounts recorded on the books of a global dealing operation that are allocated between ECI and non-ECI under Proposed Regulations section 1.863-3(h) and Proposed Regulations section 1.864-4(c)(2)(iv).

Line 9. Other loans and investments. On line 9a, enter the amount of other non-U.S. asset loans and investments to third parties (whether related or unrelated parties). Non-U.S. assets in this category are loans and investments that give rise to noneffectively connected income. If a taxpayer has investments that give rise to ECI in part and non-ECI in part, enter the proportionate amount of the investment asset that gives rise to non-ECI on line 9a. Do not include interbranch amounts on line 9a. On line 9b, report the U.S. asset loans and investments to third parties (whether related or unrelated parties). U.S. asset loans and investments are assets that give rise to ECI. If an investment asset gives rise to ECI in part and non-ECI in part, enter the proportionate amount of the investment asset that gives rise to ECI on line 9b. See Regulations section 1.884-1(d) (2)(vii). Attach a statement indicating the amount for each category of loans and investment assets held by the corporation that give rise to non-ECI (line 9a) and ECI (line 9b) (for example, loans to customers, securities described in Regulations section 1.864-4(c)(5)(ii)(b)(3)).

Line 15. Other non-current interbranch assets. Include on line 15 non-current interbranch amounts on the Schedule L books recorded with other non-Schedule L books of the corporation (including disregarded entities whose books are not reportable on Schedule L). Non-current assets are determined in accordance with the accounting practices of the corporation on its books and records.

Line 16. Other non-current, third-party assets. Report on line 16a, other non-current, non-U.S. assets on the Schedule L books with third parties (whether related or unrelated parties). Non-U.S. assets are those that give rise to noneffectively connected income. Attach a statement to indicate the amount for each category of non-U.S. assets (for example, foreign-related party assets that give rise to non-ECI under section 864(c)(4) (D)). Report on line 16b other non-current U.S. assets on the Schedule L books with third parties (whether related or unrelated parties). U.S. assets are those that give rise to ECI in accordance with Regulations section 1.884-1(d). Attach a statement indicating the amount for each category of assets that give rise to ECI.

Line 19. Mortgages, notes, bonds payable in less than 1 year. Enter on line 19a interbranch liabilities on the Schedule L books that are payable in less than 1 year to books of the corporation that are not reportable on Schedule L (including books of disregarded entities that are not reportable on Schedule L). Report only interbranch liabilities that accrue or pay interest on the Schedule L books and records to other books of the corporation in accordance with the corporation’s internal accounting practices. Attach a statement indicating the amount for each category of interbranch liabilities (for example, money market deposit liabilities, other short-term liabilities, etc.). On line 19b, enter liabilities on the Schedule L books that are payable in less than 1 year to third parties (whether related or

Instructions for Form 1120-F (2025) 35

unrelated). Attach a statement indicating the amount for each category of liability owed to third parties (for example, money market deposit liabilities, other short-term borrowings, Vostro accounts, etc.).

Line 22. Mortgages, notes, bonds payable in 1 year or more. Enter on line 22a interbranch liabilities on the Schedule L books that are payable in 1 year or more to books of the corporation that are not reportable on Schedule L (including books of disregarded entities that are not reportable on Schedule L). Report only interbranch liabilities that accrue or pay interest on the Schedule L books and records to other books of the corporation in accordance with the corporation’s internal accounting practices. Attach a statement indicating the amounts for each category of liability (for example, long-term interbranch borrowings). Enter on line 22b liabilities on the Schedule L books that are payable in 1 year or more to third parties (whether related or unrelated parties). Attach a statement indicating the amounts for each category of liability (for example, long-term certificates of deposit, other long-term borrowings, etc.).

Line 24. Other liabilities. Enter on line 24a other interbranch liability amounts on the Schedule L books owed to other books of the corporation (including to books of disregarded entities) not reportable on Schedule L, including amounts that do not give rise to interest accruals or payments in accordance with the corporation’s internal accounting practices. Attach a statement indicating the amount for each category of interbranch liability reported on line 24a. Enter on line 24b other liability amounts on the Schedule L books owed to third parties (whether related or unrelated parties) including amounts that do not give rise to interest accruals or payments in accordance with the corporation’s accounting practices. Attach a statement indicating the amount for each category of third-party liability reported on line 24b.

establishment under the application by analogy of the OECD Transfer Pricing Guidelines as authorized by the relevant treaty (for example, see Article 7 (Business Profits) and the accompanying Exchange of Notes). In such cases, the set(s) of books that must be reported on Schedule L are those of the U.S. permanent establishment as determined under the OECD Transfer Pricing Guidelines.