Summary Of Corporate Forms A summary of the tax characteristics of different corporate forms.

Domestic International Sales Corporation The DISC was used in conjunction with Foreign Sales Corporations, but has been reborn following 2003 legislation.

Limited Partnership Limited Partnerships are often used for investment-holding purposes, and have 'pass-through' status for domestic partners.

Domestic International Sales Corporation

The Domestic International Sales Corporation has come back into favour after a period of disuse. The form existed until 2002 to encourage export activity by allowing tax deferral within the DISC while it was more or less exclusively engaged in export sales activity; but when the Foreign Sales Corporation regime was replaced following adverse rulings from the WTO, the DISC temporarily ceased to be of interest.

Then in 2003 the Jobs and Growth Tax Relief Reconciliation Act introduced a beneficial regime for commission-earning DISCs under which the eventual tax charge on the DISCs profits (in the hands of its shareholders) was reduced to 15%.

In order to qualify for an DISC, the US exporter must have export property that is manufactured, produced, grown or extracted in the United States by a person other than a DISC, is held primarily for sale, lease or rental for direct use, consumption or disposition outside the United States, and contains a minimum of 50% US content. These rules are subject to a 95% test.

A DISC may own a FISC (Foreign International Sales Corporation) outside the US and Puerto Rica (eg in the US Virgin Islands) which subject to transfer pricing rules can be a beneficial combination.

In order to qualify as a Domestic International Sales Corporation (DISC), a corporation needs to have only one class of stock with par value of at least USD2,500. An DISC election must have been made and not terminated.

There are complex rules governing the allocation of expenses, treatment of loss sales, treatment of interest expense, etc.

The profits of a DISC are not subject to corporate taxation (it is deferred), although income from a DISC is subject to corporate taxation in the hands of shareholders in certain circumstances:

• Deemed distribution
  
• Distribution upon disqualification
  
• Income attributable to military property
  
• Disposition of DISC stock
  
• There was a foreign investment attributable to DISC earnings
  
• Any income attributable to qualified export receipts exceeding USD10 million.

Form 8404 (Computation of Interest Charge on DISC-Related Deferred Tax Liability) must be filed to report the interest charge on a DISC. The priority of distributions is:

• Out of previously taxed income (PTI)
  
• Out of accumulated DISC income
  
• Out of other E&P

This is a highly simplified account of the DISC, whose operation is closely controlled by detailed legislation.

Summary Of Corporate Forms A summary of the tax characteristics of different corporate forms.

Domestic International Sales Corporation The DISC was used in conjunction with Foreign Sales Corporations, but has been reborn following 2003 legislation.

Limited Partnership Limited Partnerships are often used for investment-holding purposes, and have 'pass-through' status for domestic partners.