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> Information provided on this site is for general guidance only and is often simplified. Actual IRS procedures are complex, and taxpayers should obtain professional assistance or use IRS sources for complete information.

Last updated: 19th October 2012
Foreign Sales Corporations
15% of the export revenue concerned was exempted from corporation tax, meaning (at 35% tax) that companies kept 5.25% more of their revenue.  

Extra-Territorial Income Exclusion Act
The FSC Repeal and Extraterritorial Income Exclusion Act of 2000 effectively 'repatriated' the FSC tax break.

Remedial US Legislation
Repealing the export subsidy legislation was a difficult process in the Congress.


Extra-Territorial Income Exclusion Act

The FSC Repeal and Extraterritorial Income Exclusion Act of 2000 effectively 'repatriated' the FSC tax break and extended it to all types of entity with qualifying foreign sales, including 'S' corporations and LLCs, which were previously excluded. Foreign companies which are US taxpayers could also use the tax break, which was not the case previously. There are rules requiring a certain proportion of US-manufactured content and a certain proportion of foreign costs; and foreign tax credits on the goods concerned are not available to a participating entity. Actual manufacture can take place either inside or outside the US.

The amount of the tax saving was the same as before under the new rules, but the total foregone by the Government was more, because a wider range of companies could take part.

As under the previous law, the benefit applied to exports and a 50% US-content rule remained. Those features caused the new regime to continue to resemble an export tax subsidy. In response, the Administration pointed to the elimination of administrative transfer pricing rules. The argument was disingenuous because the separate company requirement of the FSC and DISC legislation had been eliminated. Without the need for two companies – a manufacturing company and a sales company – no need existed for transfer pricing rules.

The EU did not accept the new legislation as conforming with WTO rules, and after a long series of hearings and appeals, the WTO ruled definitively against the ETI rules in late 2002. The EU then prepared a list of US products on which it intended to apply sanctions in the form of countervailing duties, and obtained the WTO's permission for such action, which it finally put into effect in early 2004 in the absence of a substantial change in the ETI regime.

After much to-ing and fro-ing, US President George W Bush finally signed a law in late 2004 which repealed the FSC-ETI legislation in favour of broader tax reliefs.

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Foreign Sales Corporations
15% of the export revenue concerned was exempted from corporation tax, meaning (at 35% tax) that companies kept 5.25% more of their revenue.  

Extra-Territorial Income Exclusion Act
The FSC Repeal and Extraterritorial Income Exclusion Act of 2000 effectively 'repatriated' the FSC tax break.

Remedial US Legislation
Repealing the export subsidy legislation was a difficult process in the Congress.




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