Benefiting from DISC's
Related and Subsidiary Services
By Robert Feinschreiber and Margaret Kent

Astute exporters are beginning to develop plans to replace their extraterritorial income (El) program with a Domestic International Sales Corporation (DISC) structure The DISC program includes related and subsidiary services in its ambit, providing an important benefit to DISCs that are structured in a manner to achieve these benefits} This article specifically addresses these DISC related and subsidiary services.

Determining When Services Are Related and Subsidiary

Internal Revenue Code (IRC) Section 992(a)(1) establishes the basic parameters for DISC status. Section 992(a)(1)(A), as one these parameters, imposes a requirement that 95 per- cent of the DISC's gross receipts consist of export gross receipts. Section 993(a)(1)(C) pro- vides that export gross receipts include gross receipts for services that are "related and subsidiary to any qualified sale, exchange, lease, rental, or other disposition of export property" by the DISC. The statute specifically defines "gross receipts,"3 and "export property,"4 while the terms "sale, exchange, lease, rental, or other disposition" are previously defined. The issue then becomes the interpretation of "related and subsidiary" services in the DISC context in analyzing the scope of these provisions.

As a general matter, Treasury Regulations Section 1.993-1(d) defines the manner and scope of the DISC's related and subsidiary serv- ices. Services that qualify under these provisions must meet the following requirements:

The regulation under Section 1.993-1(d) pro- vides that services that meet the previously mentioned requirements can take place in the United States, in the country in which the services are destined, or in another country. For example, a DISC provides repair and warranty services, treated as affiliated services under Section 1.993-1(d)(3)(ii)(c) in the regulations. The DISC performs the repair service in the country where the equipment is located, provides warranty services in a third country, and supervises both functions in the United States:

Services Furnished by the DISC Treasury Regulations Section 1.993-1(d)(1) requires that the DISC furnish the service directly or as a commission agent. Section 1.993-1(d)(2) specifies three alternative circum...

JUNE 2004
Robert Feinschreiber and Margaret Kent are practitioners who have 20 years experience in interest charge DISC. Mr. Feinschreiber began his involvement with the DISC program pre- ceding its 1971 enactment. You can reach them at (305) 361-5800 or

For a copy of the entire article please contact:
ExportDISC Management Company
pursuant to Section 993(a)(1)(H) and Section 993(b)(2)
Robert Feinschreiber & Margaret Kent

1121 Crandon Blvd. F301
Key Biscayne, FL 33149
Primary Phone: 305.361.5800
or 305.505.9200
Fax: 305.365.2276
disc, disc services, export, disc's, robert feinschreiber, margaret kent, Domestic International Sales Corporation