442
Opinion of the Court
Soon after its enactment, the DISC statute became "the subject of an ongoing dispute between the United States and certain other signatories of the General Agreement on Tariffs and Trade (GATT)" regarding whether the DISC provisions were impermissible subsidies that violated our treaty obligations. Committee Print 634. "To remove the DISC as a contentious issue and to avoid further disputes over retaliation, the United States made a commitment to the GATT Council on October 1, 1982, to propose legislation that would address the concerns of other GATT members." Id., at 634- 635. This ultimately resulted in the replacement of the DISC provisions in 1984 with the "foreign sales corporation" (FSC) provisions of the Code. See Deficit Reduction Act of 1984, Pub. L. 98-369, §§ 801-805, 98 Stat. 985.5
Unlike a DISC, an FSC is a foreign corporation, and a portion of its income is taxable by the United States. See ibid.; see also B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders ¶ 17.14 (5th ed. 1987). Whereas a portion of a DISC's income was tax deferred, a portion of an FSC's income is exempted from taxation. Compare 26 U. S. C. §§ 991-997 with 26 U. S. C. §§ 921, 923 (1988 ed.). Hence, under the FSC regime, as under the DISC regime, it is in the parent's interest to maximize the FSC's share of the taxable income generated by export sales. Because the differences between the DISC and FSC regimes for the most part are immaterial to this suit, the analysis in this opinion will focus mainly on the DISC provisions.6
The Internal Revenue Code gives the taxpayer an election either to capitalize and amortize the costs of R&D over a period of years or to deduct such expenses currently. See
$1,000 gross receipt produced the "transfer price" of $816. See S. Rep., at 108, n. 7; H. R. Rep. No. 92-533, p. 74, n. 7 (1971) (hereinafter H. R. Rep.).
5 In 2000, Congress repealed and replaced the FSC provisions with the "extraterritorial income" exclusion of 26 U. S. C. § 114.
6 Two aspects of the 1984 statute that do have special significance to this suit are discussed in Part IV, infra.
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