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Leading Deloitte Tax Experts Map History of Export Tax Incentives, Offer Guidance on Interest-Charge Domestic Sales Corporations

NEWS RELEASE

Contacts:
Mark Carrington
(703) 341.5880
mcarrington@bna.com

Arlington, Va. (September 22, 2009) – With the demise of Domestic International Sales Corporations (DISCs) and Foreign Sales Corporations (FSCs), only Interest-Charge DISCs (IC DISCs) remain to stimulate U.S. exports and encourage U.S. firms to maintain their manufacturing operations domestically. How they work and the reasons why U.S. corporations should take a closer look at them is outlined in BNA’s latest analysis, Export Tax Incentives written by Deloitte tax experts Mark Thompson and Terri LaRae (Zuraff).

 “Many of the IC DISC structures in place today are used to either take advantage of favorable U.S. tax rates on dividend distributions or to direct a steady flow of cash distributions to a specified group of shareholders,” write Thompson and LaRae, adding “the IC DISC is primarily intended, however, to allow a shareholder to defer the tax on a portion of export-related income.”

This Portfolio examines the history of export tax incentives under the Internal Revenue Code and then discusses the rules pertaining to interest-charge domestic international sales corporations (IC DISCs), which currently constitute the only export tax incentive under the Code. The IC DISC rules are a remnant from the DISC rules, which were originally enacted by the Revenue Act of 1971 and then significantly revised by the Deficit Reduction Act of 1984.

Two other former regimes are also discussed. The first is the foreign sales corporation (FSC) rules, an export tax incentive which was enacted by the Deficit Reduction Act of 1984 and repealed by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000. By utilizing a FSC, a U.S. exporter typically was able to obtain a tax benefit equal to a 15% exemption (or more) from federal tax (and, in many cases, state income tax) on its export profits.

Lastly, this Portfolio discusses the extraterritorial income (ETI) rules, an export tax incentive which was enacted by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 and repealed by the American Jobs Creation Act of 2004. The ETI rules provided a tax benefit generally similar to that provided under the FSC rules. The repeal of the ETI regime was generally effective for transactions occurring after December 31, 2004, but transition rules provided for a two-year phase-out of the provisions, as well as continued benefits applicable to exports sold under existing binding contracts. The ETI (and FSC) binding contract provisions were repealed by the Tax Increase Prevention and Reconciliation Act of 2005.

About the Authors

Mark Thompson, B.S. (Accounting), University of Wisconsin – LaCrosse; is a partner in the International Tax Group of Deloitte Tax LLP with responsibility for the International Tax Compliance practice.

Terri LaRae, Master of Business Taxation, University of Minnesota; is also partner in the International Tax Group of Deloitte Tax LLP with responsibility for the International Tax Quantitative Consulting Services (IT.QCS) practice, oversight of the U.S. VAT practice and membership on Deloitte's CEO Advisory Committee and Tax Advisory Group.

For information on BNA Tax & Accounting’s International Tax Library and other Portfolios in this series, go to www.bnatax.com. 

About BNA Tax & Accounting
BNA Tax & Accounting is the foremost source of news, analysis, and practice tools for tax attorneys, estate planners, accountants, and corporate tax and financial accounting professionals. For more than 50 years, BNA Tax & Accounting has offered practitioners expert insights and guidance on every significant issue in tax planning and financial accounting. Written by practitioners for practitioners, BNA’s award-winning Portfolios offer topic-driven, in-depth guidance on transactions designed to help tax professionals achieve new levels of excellence and client service. Visit BNA Tax & Accounting online at www.bnatax.com.

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