FSC Program - Details
The FSC provisions (IRS Code Sections 921-927) operate as an exception to the United States general rules of worldwide taxation of U.S. citizens, residents and corporations. Taxpayers using a FSC get a partial exemption from U.S. tax on export profits. A portion of these profits is allocated to the FSC. A portion of that allocated amount is treated as tax exempt in the hands of the FSC. The other portion is taxable to the FSC.
Dividends paid by the FSC to the shareholder generally qualify for a 100% dividends received deduction, provided the recipient is a corporation. The rule provides an exemption, rather than merely deferral.
The exclusion can provide an exemption of 15% of export profits and it is not subject to alternative minimum tax. Also, to maximize tax benefits, the exporter can perform sophisticated calculations using special tax preparation software. In addition, we help companies mitigate state taxation and increase the amounts in shareholders’ IRAs or Roth-IRAs using distributions from the Shared FSC.
Foreign tax credits associated with qualifying income generally are lost.
Export products qualifying for the FSC exemption are manufactured merchandise, agricultural products, some architectural & engineering services, and most types of software.
In order to qualify export transactions for the benefit, certain “foreign management” and “foreign economic processes” requirements must be met. “Small FSCs” are excused from these requirements. In order to qualify, most exporters must perform (or have performed for them) certain “foreign economic processes.”
QSM offers FSC benefits in the form of participation in a Shared FSC. Fixed and “know-how” costs are shared, but there is no sharing of information or liabilities, etc. Everything necessary to obtain the tax benefit is provided, including foreign economic processes, preparation of the Shared FSC tax return and the numbers for your income tax return.
The FSC provisions and benefits will expire 12/31/01 and have been replaced effective 10/1/00 by the Extraterritorial Income Exclusion.
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