About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

Export Tax Benefits and the WTO: Foreign Sales Corporations and the Extraterritorial Replacement Provisions , Record No.: RS20746, Date: May 15, 2003 1 (May 15, 2003)

handle is hein.tera/crstax0187 and id is 1 raw text is: Order Code RS20746 Updated May 15, 2003 CRS Report for Congress Received through the CRS Web Export Tax Benefits and the WTO: Foreign Sales Corporations and the Extraterritorial Replacement Provisions David L. Brumbaugh Specialist in Public Finance Government and Finance Division Summary The U.S. tax code's Foreign Sales Corporation (FSC) provisions provided a tax benefit for U.S. exporters. However, the European Union (EU) in 1997 charged that the provision was an export subsidy and contravened the World Trade Organization (WTO) agreements. A WTO ruling upheld the EU complaint, and to avoid retaliatory tariffs, U.S. legislation in 2000 replaced FSC with a redesigned export benefit, the extraterritorial income (ETI) provisions. The EU maintained that ETI is also not WTO-compliant, and WTO panel reports again supported the EU. In August 2002, a WTO arbitration panel approved the EU's request for up to $4 billion of tariffs, but the EU has indicated it would not impose tariffs as long as the United States makes progress on legislation achieving WTO compliance. In the 107th Congress, Chairman Thomas of the House Ways and Means Committee introduced H.R. 5095, combining repeal of ETI with tax reductions for U.S. firms' foreign business operations, but no action was taken on the bill, while in the Senate. Senators Baucus and Grassley of the Finance Committee formed a legislative-executive, bicameral, bipartisan working group to recommend a solution to the ETI dispute. In the 108th Congress, Representatives Crane and Rangel proposed H.R. 1769, which would replace ETI with a tax benefit linked to domestic U.S. production income. In May 2003, however, EU officials indicated they would review the situation in the fall and possibly move to implement tariffs by the beginning of 2004. For its part, economic analysis suggests that FSC and ETI do little to increase exports but likely trigger exchange rate adjustments that also result in an increase in U.S. imports; the long-run impact on the trade balance is probably extremely small. Economic theory also suggests that export benefits likely reduce U.S. economic welfare. This report will be updated as events warrant. History: DISC and the General Agreements on Tariffs and Trade The current FSC/ETI controversy has its roots in the legislative antecedent of both: the U.S. tax code's Domestic International Sales Corporation (DISC) provisions, enacted as part of the Revenue Act of 1971 (P.L. 92-178). Like FSC and the ETI provisions, Congressional Research Service ** The Library of Congress

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most