The TCJA creates new export related tax incentive in the form of a deduction for Foreign-Derived Intangible Income (“FDII”) and preserves the Interest Charge Domestic International Sales Corporation (IC-DISC) regime. Only regular “C” corporations are entitled to the FDII deduction, and all U.S. exporters can benefit from an IC-DISC.
Qualified shareholders can benefit from both provisions simultaneously.
The Tax Act creates a new deduction equal to 37.5% of “foreign-derived intangible income” (FDII) generated by a U.S. corporation — generally income generated from sales to, and services provided to, non-U.S. persons outside of the United States. This deduction is only available to regular domestic “C” Corporations.
The Interest Charge Domestic International Sales Corporation (IC-DISC) regime was established in 1984 as one of the successors to the legacy DISC regime created as part of the Income Tax Act of 1971. Both provisions allow tax free deferral, but the IC-DISC limits the amount of deferral to the amount of income attributable to $10 million of export gross receipts. The IC-DISC also imposes an interest charge on the amount of deferred DISC income.