§241-3.5  Deduction from entire net income. There shall be allowed as a deduction from entire net income to the extent notdeductible in determining federal taxable income, the adjusted eligible netincome of an international banking facility, as defined in section 412:5-206,determined as follows:

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

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

(A)  Making, arranging for, placing, orservicing loans to foreign persons; provided that in the case of a foreignperson 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 partnershipwhich is eighty per cent or more owned or controlled, either directly orindirectly, by one or more domestic corporations (other than a bank), domesticpartnership, or resident individual, substantially all the proceeds of the loanshall be for use outside of the United States;

(B)  Making or placing deposits with foreignpersons which are banks or foreign branches of banks (including foreignsubsidiaries or foreign branches of the taxpayer) or with other internationalbanking facilities; or

(C)  Entering into foreign exchange trading orhedging transactions related to any of the transactions described in thisparagraph.

(3)  Applicable expenses shall be any expense or otherdeduction attributable, directly or indirectly, to the eligible gross incomedescribed in paragraph (2).

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

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

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

(A)  The numerator shall be:

(i)  The percentage, as set forth insubparagraph (C), of the average aggregate amount of the taxpayer's loans toforeign persons and deposits with foreign persons which are banks or foreignbranches of banks, or savings and loan associations or foreign branches ofsavings and loan associations, as the case may be, (including foreignsubsidiaries or foreign branches of the taxpayer), which loans and depositswere 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 loansand such deposits for the taxable year of the taxpayer (other than such loansand deposits to an international banking facility); provided that in no caseshall the amount determined in this clause exceed the amount determined in thissubparagraph;

(B)  The denominator shall be the average aggregateamount of the loans to foreign persons and deposits with foreign persons whichare banks or foreign branches of banks, including foreign subsidiaries orforeign branches of the bank, (or savings and loan associations, as the casemay be) which loans and deposits were recorded in the financial accounts of thetaxpayer's international banking facility for the taxable year;

(C)  The percentage shall be one hundred percent for the first taxable year in which the taxpayer establishes aninternational banking facility and for the next succeeding four taxable years. The percentage shall be eighty per cent for the sixth, sixty per cent for theseventh, forty per cent for the eighth, and twenty per cent for the ninth andtenth taxable years next succeeding the year such bank or savings and loanassociation establishes such facility, and zero in the eleventh succeeding yearand thereafter.

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

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

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

(B)  A foreign corporation, a foreignpartnership, or a foreign trust, as defined in section 7701 of the federalInternal Revenue Code of 1954, as amended, other than a domestic branchthereof,

(C)  A foreign branch of a domestic corporation(including the taxpayer),

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

(E)  An international banking facility.

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