Since the disparities between the World Trade Organization and U.S. Internal Revenue Codes have recently subsided, the US Code and Regulations governing how profits earned from US exports are taxed have been reduced to one outlet for U.S. companies.
The Interest Charge Domestic International Sales Corporation (IC-DISC) provides the last haven for export tax incentives.
Companies utilize the IC-DISC to convert ordinary income on exports, which is taxed at the highest tax rate, to qualified dividends, which are taxed at a much lower tax rate.
Benefits of using DISC
While most DISCs exist mostly as paper entities, the benefits they provide for U.S. companies can be immense. PIASCIK’s international tax professionals have decades of experience working within the DISC Code and Regulation, qualifying companies’ export sales, and ultimately how the DISC can be a boon to their businesses.
Benefits:
- Reduced tax base for exporter
- Safeguard against double taxation
- Significant drop in tax rate
- Increased capital for export expansion
Thousands of companies take advantage of DISCevery year. Unfortunately, there are still many businesses that do not realize that they may qualify for this export incentive. PIASCIK can help you determine if your company can participate in the DISC.
Is my company eligible for IC-DISC?
Under the current IRS guidelines, only three types of companies are eligible for export tax incentives.
They include direct exporters that ship manufactured goods to be sold or used or consumed in a foreign country, indirect exporters, which include manufacturers who produce components to goods that ultimately end up in foreign countries within a specified time limit, and brokers who resale US products abroad, but do not the manufacturer, and certain architectural and engineering services.
There are many companies that do not realize they are eligible to create an IC-DISC.
Example industries that may be directly affected by IC-DISC benefits and export tax management:
- Agriculture and Food Processing
- Metal fabrications
- Manufacturing
- Film and Recording
- Heavy equipment
- Architectural and Engineering services
- Pharmaceuticals
- Distribution
- Software and Technology
- Aerospace and Defense
- Mining and Minerals
IC-DISC commission calculations
There are two traditional methods to determine the maximum allowable DISC commission a company can utilize. The first IC-DISC commission calculation is the overall method equaling a maximum of 4% of overall export gross receipts. The second method is equal to a maximum of 50% of export sales net income. The chart below illustrates both with the final IC-DISC commission utilizing the method with the highest commission:
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Export Company A |
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Qualified export gross receipts |
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$10,000,000.00 |
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Expenses (COGS, administration expenses, etc.) |
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$8,000,000.00 |
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Export sales net income |
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$2,000,000.00 |
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IC-DISC options |
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4% export gross receipts |
$400,000.00 |
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50% export net income |
$1,000,000.00 |
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IC-DISC commission (using the best value from above) |
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$1,000,000.00 |
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Typical 35% federal tax |
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$350,000.00 |
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IC-DISC dividend 15% sales tax |
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$150,000.00 |
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Tax savings |
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$200,000.00 |
In this example, the second method provided a higher DISC commission allowance. Each company has its own unique operating processes,which can also affect DISC commissions. Additionally, Individual transactions can increase your DISC commissions dramatically.
Professional export tax advice
PIASCIK international tax professionals have over 75 years of combined expertise on international tax matters. Our experienced professionals also offer expatriate taxation services, FBAR filings, OVDI filings, and economic cost studies. Contact us today and discover how PIASCIK can show you the options that benefit you the most. PIASCIK even includes the initial consultation for FREE with no obligations from you.
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