Academic journal article Journal of Accountancy

U.S. Export Rules in Question; Dispute over International Trade Agreements Continues

Academic journal article Journal of Accountancy

U.S. Export Rules in Question; Dispute over International Trade Agreements Continues

Article excerpt

U.S. taxation of profits companies make from exporting goods has gone through several stages over the years. For a long time, U.S. multinational corporations were able to set up and use foreign subsidiaries whose income was free from U.S. income tax (as long as it was not repatriated and brought back into this country). Corporations set up offshore operations, through which the U.S. parent channeled manufactured products.

CFCs. In the 1960s Congress decided to tax some of this income when it was earned (rather than when it was brought back into the United States), by taxing certain controlled foreign corporations (CFCs). The CFC rules imposed tax on certain types of income.

DISCs. In 1971 Congress decided it wanted to promote exporting and keep U.S. manufacturing in this country. It created the domestic international sales corporation (DISC), which, in effect, exempted certain export-related income from corporate taxation.

International controversy. With all these changes in U.S. tax laws came disputes. What was then the European Economic Community (EEC) claimed DISC rules violated trade agreements between the United States and European countries. These claims led to a settlement, with this country's limiting the amounts of DISC income it would allow to be deferred.

FSCs. In the 1980s Congress again changed the laws governing foreign income. Believing that foreign tax laws disadvantaged U.S. exporters, Congress set up the foreign sales corporation (FSC) rules. If a foreign corporation (established in a qualifying jurisdiction that met a number of requirements) elected FSC treatment, a portion of the income earned from export sales was exempt from U.S. taxation.

More problems. In 1995 the World Trade Organization (WTO), of which this country is a member, was formed. …

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