Export Tax Incentives (Portfolio 6360)
This portfolio discusses the rules pertaining to interest-charge domestic international sales corporations (IC DISCs), which currently constitute one of the two remaining export tax incentives under the Internal Revenue Code of 1986, as amended. The Portfolio also discusses the rules pertaining to foreign derived intangible income (FDII), which is the other export tax incentive under…
The IC DISC rules are a continuation of the DISC rules, which were originally enacted in 1971, significantly revised in 1984, and remain in the wake of the enactment and repeal of two other export tax regimes, the foreign sales corporation (FSC) rules and the extraterritorial income (ETI) rules. The FSC and ETI rules continue to influence the DISC regime. The FDII rules have a much shorter history, having been enacted in 2017.
Following a summary of the history of U.S. export tax rules, the Portfolio discusses the operative rules governing DISCs, including the potential tax benefits they can provide and limitations on those benefits. The term DISC is used in the Internal Revenue Code and Treasury regulations for all DISCs unless specifically separately identified. The Portfolio uses the term DISC for both regimes. Examples of how those benefits arise and how they can be maximized in typical situations are included. The Portfolio examines how DISCs are structured and the detailed rules governing their eligibility, including the criteria for qualified export receipts and qualified export assets and transactions that can jeopardize a corporation’s IC DISC status. In exploring the potential tax benefits from both buy-sell and commission DISCs and the limitations on those benefits, the Portfolio discusses the applicable intercompany pricing rules, the rules governing DISC distributions, and interest charges imposed on DISC shareholders with respect to actual and deemed DISC distributions. The FDII discussion explains the policy goals of the FDII rules, the mechanics of the FDII deduction, and the complexity of the foreign use provisions. It also discusses the similarities used by both regimes.
This Portfolio may be cited as Block, 6360 T.M., Export Tax Incentives.
Table of Contents
I. Prior Export Tax Incentives Under the Code
II. Interest-Charge DISCs (IC DISCs)
III. Foreign-Derived Intangible Income (FDII) Rules (1984-2000)
IV. Use of DISC Regime and FDII Regime for Transactions Meeting the Requirements for Both Regimes
Baker & McKenzie LLP