§241-3.5 - Deduction from entire net income.

§241-3.5 Deduction from entire net income.
There shall be allowed as a deduction from entire net income to the extent not
deductible in determining federal taxable income, the adjusted eligible net
income of an international banking facility, as defined in section 412:5-206,
determined as follows:

(1) The eligible net income of an international
banking facility shall be the amount remaining after subtracting from the
eligible gross income the applicable expenses.

(2) Eligible gross income shall be the gross income
derived by an international banking facility from:

(A) Making, arranging for, placing, or
servicing loans to foreign persons; provided that in the case of a foreign
person which is an individual, or which is a foreign branch of a domestic corporation
(other than a bank), or which is a foreign corporation or foreign partnership
which is eighty per cent or more owned or controlled, either directly or
indirectly, by one or more domestic corporations (other than a bank), domestic
partnership, or resident individual, substantially all the proceeds of the loan
shall be for use outside of the United States;

(B) Making or placing deposits with foreign
persons which are banks or foreign branches of banks (including foreign
subsidiaries or foreign branches of the taxpayer) or with other international
banking facilities; or

(C) Entering into foreign exchange trading or
hedging transactions related to any of the transactions described in this
paragraph.

(3) Applicable expenses shall be any expense or other
deduction attributable, directly or indirectly, to the eligible gross income
described in paragraph (2).

(4) Adjusted eligible net income shall be determined
by subtracting from eligible net income the ineligible funding amount, and by
subtracting from the amount then remaining the floor amount.

(5) The ineligible funding amount shall be the
amount, if any, determined by multiplying eligible net income by a fraction,
the numerator of which is the average aggregate amount for the taxable year of
all liabilities, including deposits, and other sources of funds to the
international banking facility which were not owed to or received from foreign
persons, and the denominator of which is the average aggregate amount from the
taxable year of all liabilities, including deposits and other sources of funds
of the international banking facility.

(6) The floor amount shall be the amount, if any,
determined by multiplying the amount remaining after subtracting the ineligible
funding amount from the eligible net income by a fraction, not greater than
one, which is determined as follows:

(A) The numerator shall be:

(i) The percentage, as set forth in
subparagraph (C), of the average aggregate amount of the taxpayer's loans to
foreign persons and deposits with foreign persons which are banks or foreign
branches of banks, or savings and loan associations or foreign branches of
savings and loan associations, as the case may be, (including foreign
subsidiaries or foreign branches of the taxpayer), which loans and deposits
were recorded in the financial accounts of the taxpayer for its branches,
agencies, and offices within the State for taxable years 1980, 1981, and 1982,
minus;

(ii) The average aggregate amount of such loans
and such deposits for the taxable year of the taxpayer (other than such loans
and deposits to an international banking facility); provided that in no case
shall the amount determined in this clause exceed the amount determined in this
subparagraph;

(B) The denominator shall be the average aggregate
amount of the loans to foreign persons and deposits with foreign persons which
are banks or foreign branches of banks, including foreign subsidiaries or
foreign branches of the bank, (or savings and loan associations, as the case
may be) which loans and deposits were recorded in the financial accounts of the
taxpayer's international banking facility for the taxable year;

(C) The percentage shall be one hundred per
cent for the first taxable year in which the taxpayer establishes an
international banking facility and for the next succeeding four taxable years.
The percentage shall be eighty per cent for the sixth, sixty per cent for the
seventh, forty per cent for the eighth, and twenty per cent for the ninth and
tenth taxable years next succeeding the year such bank or savings and loan
association establishes such facility, and zero in the eleventh succeeding year
and thereafter.

(7) If adjusted eligible net income is a loss, the
amount of such loss shall be added to entire net income.

(8) As used in this section, the term "foreign
person" means:

(A) An individual who is not a resident of the
United States,

(B) A foreign corporation, a foreign
partnership, or a foreign trust, as defined in section 7701 of the federal
Internal Revenue Code of 1954, as amended, other than a domestic branch
thereof,

(D) A foreign government or an international
organization or an agency of either, or

(E) An international banking facility.

For the purposes of
this paragraph, the term "foreign" and "domestic" have the
same meaning as set forth in section 7701 of the federal Internal Revenue Code
of 1954, as amended. [L 1983, c 278, §3; am L 1993, c 350, §12]