Par. 2. Section 1.475(g)-2 is added as follows:
(a) In general. This section provides computational rules to coordinate the application of section 475 and Sec. 1.446-4 with rules for allocation and sourcing under the global dealing regulations. If the requirements in paragraph (c) of this section are met, a risk transfer agreement (RTA) (as defined in paragraph (b) of this section) is accounted for under the rules of paragraph (d) of this section.
(b) Definition of risk transfer agreement. For purposes of this section, a risk transfer agreement (RTA) is a transfer of risk between two qualified business units (QBUs) (as defined in Sec. 1.989(a)-1(b)) of the same taxpayer such that--
(1) The transfer is consistent with the business practices and risk management policies of each QBU;
(2) The transfer is evidenced in each QBU's books and records;
(3) Each QBU records the RTA on its books and records at a time no later than the time the RTA is effective; and
(4) Except to the extent required by paragraph (b)(3) of this section, the entry in the books and records of each QBU is consistent with that QBU's normal accounting practices.
(c) Requirements for application of operational rule--(1) The position in the RTA of one QBU (the hedging QBU) would qualify as a hedging transaction (within the meaning of Sec. 1.1221-2(b)) with respect to that QBU if--
(i) The RTA were a transaction entered into with an unrelated party; and
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(ii) For purposes of determining whether the hedging QBU's position satisfies the risk reduction requirement in Sec. 1.1221-2(b), the only risks taken into account are the risks of the hedging QBU (that is, the risks that would be taken into account if the hedging QBU were a separate corporation that had made a separate-entity election under Sec. 1.1221-2(d)(2));
(2) The other QBU (the marking QBU) is a regular dealer in securities (within the meaning of Sec. 1.482-8(a)(2)(iii));
(3) The marking QBU would mark to market its position in the RTA under section 475 if the RTA were a transaction entered into with an unrelated party; and
(4) Income of the marking QBU is subject to allocation under Sec. 1.482-8 to two or more jurisdictions or is sourced under Sec. 1.863-3(h) to two or more jurisdictions.
(d) Operational rule. If the requirements in paragraph (c) of this section are met, each QBU that is a party to a RTA (as defined in paragraph (b) of this section) takes its position in the RTA into account as if that QBU had entered into the RTA with an unrelated party. Thus, the marking QBU marks its position to market, and the hedging QBU accounts for its position under Sec. 1.446-4. Because this section only effects coordination with the allocation and sourcing rules, it does not affect factors such as the determination of the amount of interest expense that is incurred by either QBU and that is subject to allocation and apportionment under section 864(e) or 882(c).