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from Federal income tax a portion of its profits from qualifying
export sales.3
Both the DISC and the FSC provisions reallocate a portion of
a U.S. company’s profits attributable to its export of American-made
products. The proper amount of the reallocation for 1990 and 1991
is in controversy.
Only activities that generate FTGR’s qualify for FSC benefits.
FTGR’s are the gross receipts of an FSC that are:
(1) from the sale, exchange, or other disposition
of export property,
(2) from the lease or rental of export property for
use by the lessee outside the United States,
(3) for services which are related and subsidiary
to–-
3 On Feb. 24, 2000, the World Trade Organization (WTO)
appellate body upheld an October 1999 WTO panel ruling that the
U.S. foreign sales corporation (FSC) tax regime is essentially an
export subsidy in contravention of WTO rules. The panel
recommended that the United States comply with the WTO ruling by
Oct. 1, 2000, or face the prospect of European Union retaliation.
In May 2000, the United States proposed to the European
Union an FSC replacement system, with tax benefits generally
applying to foreign income from all foreign sales, rentals, and
leases, regardless of whether goods are manufactured in the
United States or abroad. The European Union rejected this
proposal, maintaining that the system would continue to make tax
benefits contingent upon exports.
As of the release date of this Opinion, H.R. 4986, 106th
Cong., 2d Sess. (2000), the FSC Repeal and Extraterritorial
Income Exclusion Act of 2000, is under consideration in order to
bring the U.S. export tax regime into conformity with the WTO
ruling.
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