Could a Florida bank claim the international-banking-facility income deduction when eligible accounts were not separately booked?

Subject

Eligible International Banking Transactions Deductions

Plain-English summary

The bank could claim the eligible international-banking-facility net-income deduction even when qualifying receivables were not actually recorded in separate IBF books, provided the eligible accounts were capable of being segregated.

The result also required the bank to fit the statutory bank definition, conduct only qualifying international-banking-facility activities for the deduction, and limit the calculation to eligible gross income less related expenses. The quoted statute excluded income from loans or deposits secured by liens on Florida real property.

What this means for you

The ruling focused on traceability rather than the physical location of ledger entries. A bank needed records capable of isolating eligible assets, liabilities, income, and expenses and still had to satisfy every substantive transaction requirement.

Common questions

Did the accounts have to be separately booked already? No, if they were capable of being segregated.

Did every foreign transaction qualify? No. The activities and income had to fit the cited definitions and exclusions.

Were Florida-real-estate-secured loans included? The quoted statute excluded that income from eligible gross income.

Citations and references

• Fla. Stat. §§ 220.62(1), (3), 220.63(5), 199.023(11), and 213.22
• Fla. Admin. Code rr. 12C-1.012(3) and 3C-17.002(4), (4)(i), (5)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C1-007

Original ruling text

Oct 25, 1994

Re: TAA 94(C)1-007
Corporate Income Tax - Eligible International Banking Transactions Deductions Under Section 220.63(5), F.S.

Dear:

Your letter of September 12, 1994, requested a Technical Assistance Advisement on eligible international banking transactions deductions pursuant to s. 220.63(5), F.S. This response to your request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s. 213.22, Florida Statutes.

FACTS

Your letter states that XXX, hereinafter referred to as Bank, files both federal and Florida consolidated corporate income tax returns with its parent company. You further state that Bank is a commercial bank as defined in s. 220.62(1), F.S., which operates exclusively within Florida, and engages in foreign and domestic banking activities. Its foreign activities include loans to foreign entities, deposits with foreign banks, letter of credit transactions, acceptances, and other international banking transactions listed or described in Rule 3C-17.002(4), (4)(i), and (5)(b), F.A.C. Additionally, Bank engages in transactions defined as "international banking transactions" (IBF) in s. 199.023(11), F.S.

Some of the receivables arising from these transactions have been separately recorded in the "international banking facility" books of account. Others have not.

QUESTION

Is the income from these activities deductible under s. 220.63(5), F.S., irrespective as to separate segregation in IBF

maintained books of account?

DISCUSSION AND ANALYSIS OF LAW

Section 220.62, F.S., states in part:

"(3) The term `international banking facility' means a set of asset and liability accounts segregated on the books and records of a banking organization that includes only international banking facility deposits, borrowings, and extensions of credit, as those terms are defined by the Department of Banking and Finance, taking into account all transactions in which international banking facilities are permitted to engage by regulations of the Board of Governors of the Federal Reserve System, as from time to time amended. When providing such definitions, the Department of Banking and Finance shall also consider the public interest,..."

Section 220.63, F.S., states in part:

"(5) There shall be allowed as a deduction from adjusted federal income, to the extent not deductible in determining federal taxable income or subtracted pursuant to s. 220.13(1)(b)2., the eligible net income of an international banking facility determined as follows:

"(a) The `eligible net income of an international banking facility' is the amount remaining after subtracting from the eligible gross income the applicable expenses.

"(b) The `eligible gross income' is the gross income derived by an international banking facility from:

"1. Making, arranging for, placing, or servicing loans to foreign persons, provided, however, that in the case of a foreign person which is an individual, a foreign branch of a domestic corporation (other than a bank or savings association), or a foreign corporation or a foreign partnership which is 80 percent or more owned or controlled, either directly or indirectly, by one or more

domestic corporations (other than banks or savings associations), domestic partnerships, or resident individuals, substantially all the proceeds of the loan are for use outside the United States;

"2. Making or placing deposits with foreign persons which are banks or savings associations or foreign branches of banks or savings associations, including foreign subsidiaries or foreign branches of the taxpayer, or with other international banking facilities; or

"3. Entering into foreign exchange trading or hedging transactions in connection with the activities described in this paragraph.

"However, the term `eligible gross income' does not include any amount derived by an international banking facility from making, arranging for, placing, or servicing loans or making or placing deposits if the loans or deposits of funds are secured by mortgages, deeds of trust, or other liens upon real property located in this state.

"(c) The `applicable expenses' are any expenses or other deductions attributable, directly or indirectly, to the eligible gross income described in paragraph (b)."

Rule 12C-1.012, F.A.C., states in part:

"(3) For the purpose of determining the deduction authorized by s. 220.63(5), F.S., any bank or banking organization, as defined in ss. 220.62(1) or (4), F.S., is deemed to be an `international banking facility' to the extent that its eligible asset and liability accounts are segregated, or are capable of being segregated, regardless of whether such status has been established under any other applicable state or federal law.

"(b) Generally, the phrase `eligible asset and liability accounts' includes only international banking facility deposits, borrowings and extensions of credit as these terms are defined by the Florida Department of Banking and

Finance."

As stated in Rule 12C-1.012, F.A.C., to the extent that Bank fits the definition set forth in ss. 220.62(1) or (4), F.S., their transactions include only international banking facility deposits, borrowings, and extensions of credit, as those terms are defined by the Department of Banking and Finance, and keeps a set of asset and liability accounts segregated on the books and records, as required by s. 220.62(3), F.S., Bank may deduct eligible net income from adjusted federal income as provided by s. 220.63(5), F.S. Rule 12C-1.012, F.A.C., further states that this is true even if the eligible asset and liability accounts are not actually segregated, as long as they are capable of being segregated.

Therefore, provided that Bank fits the definition in s. 220.62(1), F.S., their activities are consistent with those described in Rule 3C-17.002(4), (4)(i), and (5)(b), F.A.C., and their eligible asset and liability accounts are either segregated, or capable of being segregated, they are eligible for the deduction under s. 220.63(5), F.S.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22, F.S. Our response is based on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advice is based may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the

request or the response. Please note that we already have in file some documents evidencing desired deletions.

Sincerely,

Suzanne C. Paul
Statutory Compliance Section

SCP/kk
Control No.: 17498