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...