|
Background
The IC-DISC (Interest Charge Domestic International Sales Corporation) was created in 1984 to improve the ability of smaller, closely held U.S. exporters – particularly manufacturers -- to compete in the global marketplace. Under the IC-DISC rules, we as an exporter can defer taxes on some income, until it is paid out to U.S. shareholders as a dividend, by paying an interest charge on it. This approach to taxing exports was held to be valid and legal by the World Trade Organization (WTO) in two decisions (in contrast to the “regular” DISC, and other forms of the tax treatment of exports that the WTO ruled illegal.)
Proposal
The Tax Technical Corrections Act of 2006 (H.R. 6264/S.4026), introduced in late September 2006, includes provisions that would increase the taxes on IC-DISC’s by making their revenue ineligible for the lower tax rates for dividends (currently a maximum of 15 percent). This change would apply to dividends paid after September 29, 2006. It is therefore a significant tax increase on our company and on other exporters and manufacturers using IC-DISC’s.
Reasons We Oppose this Provision
•This change is not a technical correction but a substantive change to current law. If enacted, this provision would increase our taxes on these dividends from 15 percent to 35 percent.
•This proposal is a policy matter that Congress should consider through the normal legislative process, not as part of a last-minute bill reserved for technical and non-controversial changes to the tax code. The whole idea of weakening IC-DISC’s is a bad one, but at a minimum Congress should take testimony on the issue, allow economic studies to be done, listen to alternatives, and give exporters time to plan ahead on their taxes.
•The IC-DISC structure has been in the tax code for more than two decades, and this change would suddenly increase taxes for many companies like ours. It would also cause companies like ours to lose tens of thousands of dollars that we spent, in good faith, on legal and accounting fees setting up IC-DISC’s after being assured by attorneys and CPA’s that the IC-DISC structure was approved by Congress, the IRS and the WTO.
•For the current rise in U.S. exports by smaller manufacturers to continue, we must not send them messages of indifference or hostility. It makes no sense whatsoever for Congress to suddenly and unilaterally raise taxes on small, privately held U.S. exporters.
•With our manufacturers and exporters under tremendous competitive pressures globally, and our trade deficits at record levels, we should not be giving away anything that helps American companies export.
Download this One-Pager on how to contact your Congressional Reps.
|
