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