![]() The grouping method allows an exporter to maximize IC-DISC commissions by separating high-margin sales from low margin sales. Several techniques may allow for the potential increase in IC-DISC benefits. The rules allow for different methods to be used on sales of different products based on product lines, recognized industry or trade usage, or transaction by transaction. As discussed above, there are three permissible methods to calculating the IC-DISC commission: (1) 4% of qualified export receipts (2) 50% of the combined taxable income from export sales or (3) the arm’s length amount determined under section 482.Ĭan different permissible methods be used simultaneously? IC-DISC benefits are maximized by maximizing the permissible sales commission paid to the DISC corporation. How can an electing company maximize the IC-DISC tax incentive benefits? This means that no more than 50% of the fair market value (“FMV”) of the property may be attributable to the FMV of goods imported into the U.S. ![]() The export property must have a minimum of 50% U.S. How is the IC-DISC 50% foreign content requirement calculated? What types of property are ineligible to be qualified as export property?įive types of property are ineligible to be qualified export property: (1) property rented for use by a related party (2) intellectual property other than films, tapes, records or computer software (3) unprocessed softwood timber and (4) property the President designates as being in short supply. can qualify if the property does not undergo further manufacturing or use by the purchaser prior to export, and the property is shipped to a foreign destination within a year. However, sales to a domestic company may also qualify as export property in certain cases. Clearly, property satisfies this test if delivered to a freight forwarder for ultimate shipment abroad. The destination requirement requires that export property must be held primarily for sale, lease or rental for direct use, consumption or disposition outside the U.S. How is the IC-DISC Destination Requirement calculated? are generally considered to constitute manufacturing. ![]() if either: (1) 20% of its conversion costs are incurred in the U.S., (2) there is a substantial transformation in the U.S., or (3) the operations in the U.S. Under the IC-DISC regime, property is “manufactured” in the U.S. The manufacturing requirement requires that the property must be manufactured, produced, grown or extracted in the United States by a person other than the IC-DISC. How is the IC-DISC manufacturing requirement calculated? IC-DISC must meet three requirements in order to be deemed to receive income from a sale of export property: (1) manufacturing requirement, (2) destination requirement and (3) maximum 50% foreign content requirement. Gross receipts for the managerial services for furtherance of production or other qualified export receipts. Gross receipts for engineering or architectural services for construction projects located outside the U.S. Interest in any obligation that is a qualified export asset Gross receipts for services that are related in or are subsidiary to any exchange of property Gross receipts from the lease or rental of export property for the use outside the United States Gross receipts from the sale, exchange, or other disposition of export property Qualified Gross Receipts include the following: The IC-DISC Gross Receipts test states that 95% of the gross receipts of the IC-DISC must constitute qualified gross receipts. How is the IC-DISC gross receipts test calculated? ![]() In addition, the domestic corporation must pass both a gross receipts and export asset test. The corporation may only have a single class of stock that has a minimum par value of $2,500. How does a domestic corporation qualify as an IC-DISC?Īs discussed above, an IC-DISC must be a domestic corporation. How does a domestic corporation elect IC-DISC status?Ī domestic corporation may elect IC-DISC status by filing IRS Form 4876-A, Election to be Treated as an Interest Charge DISC (see ). The sales commission paid to the IC-DISC is calculated using one of three permissible methods: (1) 4% of qualified export receipts (2) 50% of the combined taxable income from export sales or (3) the arm’s length amount determined under section 482. How is the IC-DISC commission calculated? The IC-DISC tax incentive is authorized by Congress. IC-DISC stands for interest charge domestic international sales corporation. IC-DISC, Basics of the IC-DISC Export Tax Incentive
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