Export Incentives: IC-DISC & FDII

Qualified shareholders can benefit from both provisions simultaneously.

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.

 
 
 

FDII

Maximizing FDII tax savings requires simultaneous attention on the following three interrelated computational levers:

1. Calculating intangible income attributable to Deduction Eligible Income (“DEI”)
2. Identifying all qualified Foreign-Derived Deduction Eligible Income (FD-DEI”) export receipts including both direct and indirect sales, component sales, leases, and services.
3. Selection of appropriate allocation and apportionment methodology in accordance with Treas. Reg. Section 1.861-8, including the interplay with GILTI, FTC and other statutory groupings.

Forte leverages its proprietary VantagePoint software in delivering this service.

 
 
 
 
 
 
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.

IC-DISC

Forte provides the full range of IC-DISC services, including structuring and formation, with unmatched ability to maximize related tax savings. Maximizing IC-DISC tax savings requires simultaneous attention on the following three interrelated computational levers:

• Identifying all qualified export receipts including both direct and indirect sales, component sales and leases of qualified export property.
• Selection of appropriate allocation and apportionment methodology in accordance with Treas. Reg. Section 1.861-8.
• Making full use of available DISC pricing rules and grouping alternatives including full costing and marginal costing while properly administrating overall profit limitations and special no-loss rules.

Forte’s tax professionals have been optimizing DISCs for more 35 years, and leverage its proprietary VantagePoint software in delivering this service.

 
 
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.