Future of export tax benefits.

• Jurisdiction: United States
• Date: 01 October 2000
• Author: Moore, Philip E.

Since its introduction in 1984, the major tax benefit for U.S. exporting companies has become an industry of its own--the foreign sales corporation (FSC). This export incentive was intended to replace the domestic international sales corporation (DISC) and satisfy the "substance" requirements of the General Agreement on Tariffs and Trade (GATT). However, in 1997, the European Union (EU) challenged the legality of the FSC as an export tax benefit, complaining formally to the World Trade Organization (WTO) to force the U.S to remove this "illegal export subsidy," as violative of WTO agreements. On Feb. 24, 2000, the WTO issued its final decision, declaring the FSC an illegal export subsidy under WTO agreements and asking the U.S. to terminate the FSC by Oct. 1,2000 or face a trade war with the EU. The U.S. had to act quickly to avoid that conflict.

The FSC Repeal and Extraterritorial Income Exclusion Act of 2000

On July 27, 2000, the House Ways and Means Committee introduced H.R. 4986, a bill to replace the FSC with a new exclusion from gross income for extraterritorial income. This legislation is intended to be in compliance with the WTO decision...