111:
set forth in the
Deficit Reduction Act of 1984, ... A qualifying FSC presented tax advantages for its parent company within the United States because a portion of the FSCās export income was exempt from taxation. ... The parent company of a FSC could use those tax benefits by selling its products to the FSC for resale in foreign markets, or by paying the FSC a commission for selling the parentās products in foreign markets. ... The remaining foreign trade income that was not exempt from taxation, when distributed to a parent company as a dividend, would generally not be subject to an additional tax on that distribution. ... āThe net effect of this scheme was to shift a prescribed amount of profit on export sales from an entity with a 35 percent effective tax rate to an entity (the FSC) with an effective tax rate of approximately 12 percent.ā
69:
Because a DISC has no substance, implementation and maintenance is fairly easy. Complexities can arise, however, in making calculations of the permitted DISC income due to rules designed to help maximize the subsidy. These rules include a "no loss" rule, overall profit percentage, grouping, marginal
173:
DISC status may be lost if the DISC has non-qualifying receipts or assets in excess of 5% of its total receipts or assets. To prevent inadvertent loss of the intended benefits, however, the DISC rules permit a DISC to elect to make distributions or deemed distributions retroactively. 26 USC 992(c),
88:
Code on
Subsidies and Countervailing Duties (predecessor to today's SCM), and the GATT Council decided in 1981 to adopt the panel reports subject to the understanding that the terms of the settlement would apply. The WTO Panel in the 1999 case later ruled that the 1981 decision did not constitute a
110:
In 1971, Congress āprovided special tax treatment for export sales made by an
American manufacturer through a subsidiary that qualified as a ādomestic international sales corporationā (DISC).ā ...That authority was largely replaced by provisions regarding foreign sales corporations (āFSCā), ... as
93:(FSC) was created in 1984 as an alternative to the DISC. In 1984, partially in response to international pressure, U.S. law was amended to provide that a DISC and its shareholders could continue to defer tax on the DISCās income, but only if the DISC shareholders paid interest on the deferred tax.
46:
A DISC contracts with a producer or reseller of U.S.-made goods or provider of certain qualifying construction-related services to provide "services" to such related supplier for a fee. The fee is determined under formulas and rules defined in the law and regulations. Under these regulations, the
32:
voted to use U.S. tax law to subsidize exports of U.S.-made goods. The initial mechanism was through a
Domestic International Sales Corporation (DISC), an entity with no substance which received tax benefits. Today, shareholders of a DISC continue to receive reduced income tax rates on qualifying
84:. The United States counterclaimed that European tax regulations concerning extraterritorial income were also GATT-incompatible. In 1976, a GATT panel found that both DISCs and the European tax regulations were GATT-incompatible. These cases were settled, however, by the
101:
In discussing the history of domestic international sales corporations as well as how domestic international sales corporations relate to foreign sale corporations, the U.S. Court of
Federal Claims, in
55:. If the shareholders are U.S. resident individuals or others eligible for the reduced rate of tax (now between 0% and 20%, depending on ordinary income level) on qualified dividends, then the
66:
rules normally applicable to transactions between related parties. Thus, DISC profits are not dependent on the economic contribution of the DISC, and a DISC need have no substance.
51:
to the DISC. This net profit is not subject to
Federal income tax. The DISC then distributes the profit to its shareholders, who are taxable on the income as a
36:
A DISC is a U.S. corporation that has elected DISC status and meets certain other largely symbolic requirements. A corporation so electing is not subject to U.S.
286:
223:
241:"Electronic Commerce: Customers Are Out There (Somewhere). . . By Elliot H. Berman | Godfrey & Kahn, Wisconsin business law firm"
131:
40:. Properly structured, a DISC has no activities other than on paper and no activities not related to the export of qualifying goods.
126:
240:
216:
37:
121:
90:
29:
77:
52:
220:
89:
legal instrument within the meaning of GATT-1994, and hence was not binding on the panel. The
63:
244:
227:
280:
25:
195:
183:
161:
149:
85:
70:
costing and other techniques, use of which may be improved by software tools.
48:
21:
47:
fee is deductible by the related supplier and results in a specified
62:
The pricing rules in the law and regulation are independent of the
81:
56:
59:on the income allocated to the DISC is reduced.
8:
271:, No. 2017-2360 (Fed. Cir. July 31, 2017).
33:income from exports of U.S.-made goods.
18:domestic international sales corporation
142:
76:The use of DISCs was challenged by the
106:, 132 Fed.Cl. 104, 110 (2017), stated:
7:
73:Additional substantial rules apply.
132:List of international trade topics
14:
127:Extraterritorial income exclusion
265:Ford Motor Co. v. United States,
104:Ford Motor Co. v. United States
1:
287:Taxation in the United States
267:132Fed.Cl. 104, 110 (2017),
217:See 26 USC sections 991-997
186:and regulations thereunder.
303:
122:Foreign Sales Corporation
91:Foreign Sales Corporation
20:is a concept unique to
207:26 CFR 1.994-1 and -2.
113:
44:Mechanism for benefit:
108:
226:2010-06-05 at the
78:European Community
53:qualified dividend
38:Federal income tax
294:
272:
262:
256:
255:
253:
252:
243:. Archived from
237:
231:
214:
208:
205:
199:
193:
187:
181:
175:
171:
165:
159:
153:
147:
64:transfer pricing
302:
301:
297:
296:
295:
293:
292:
291:
277:
276:
275:
269:appeal docketed
263:
259:
250:
248:
239:
238:
234:
228:Wayback Machine
215:
211:
206:
202:
194:
190:
182:
178:
172:
168:
160:
156:
148:
144:
140:
118:
99:
28:. In 1971, the
12:
11:
5:
300:
298:
290:
289:
279:
278:
274:
273:
257:
232:
209:
200:
188:
176:
166:
154:
141:
139:
136:
135:
134:
129:
124:
117:
114:
98:
95:
13:
10:
9:
6:
4:
3:
2:
299:
288:
285:
284:
282:
270:
266:
261:
258:
247:on 2005-02-17
246:
242:
236:
233:
229:
225:
222:
218:
213:
210:
204:
201:
197:
192:
189:
185:
180:
177:
170:
167:
163:
158:
155:
151:
146:
143:
137:
133:
130:
128:
125:
123:
120:
119:
115:
112:
107:
105:
96:
94:
92:
87:
83:
79:
74:
71:
67:
65:
60:
58:
54:
50:
45:
41:
39:
34:
31:
30:U.S. Congress
27:
26:United States
23:
19:
268:
264:
260:
249:. Retrieved
245:the original
235:
212:
203:
191:
179:
169:
157:
145:
109:
103:
100:
75:
72:
68:
61:
43:
42:
35:
17:
15:
230:thereunder.
221:regulations
86:Tokyo Round
251:2016-01-20
196:26 USC 995
184:26 USC 994
162:26 USC 991
150:26 USC 992
138:References
80:under the
49:net profit
281:Category
224:Archived
116:See also
57:tax rate
97:History
24:in the
22:tax law
174:supra.
219:and
82:GATT
16:The
283::
254:.
198:.
164:.
152:.
Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.