[~9516] FISC - THE FOREIGN SELLING ARM OF DISC
By Robert Feinschreiber, Attorney (New York), Partner: ExportDISC Management Company , New York, New York.
FISC, the Foreign International
Sales Corporation, is a DISC affiliate that can increase DISC
benefits in many ways. We will examine the FISC, its uses and
benefits, e under the following headings:
1. What is a FISC? ~9516.
2. Additional income for the DISC ~95l6.2
3. Increased deferral period ~95l6.3
4. Help with the assets test ~95l6.4
5. Qualifying the FISC ~95l6.5
6. Where to incorporate the FISC. , ~95l6.6
7. Planning opportunities ~95l6.7
[~95l6.1] WHAT IS A FISC?
A FISC is described by the Senate Finance Committee as a "foreign selling arm of the DISC," so it must be "principally engaged in marketing export property ."2 A FISC is a foreign corporation tbat uses substantially all its assets to increase DISC sales, derives substantially all its income from that activity, and is owned entirely (or in major part) by a DISC.3
Like a DISC, a FISC can operate
on a commission basis. Alternatively, it can operate on a buy-sell
basis and buy the export inventory from the supplier or from "'
the DISC. A FISC can even operate on a combination of these methods.
You can view the transaction as going from supplier to DISC to
FISC to customer. A FISC provides three major benefits to a company
with a DISC:
1.The income receiving a tax deferral can be increased, sometimes by 100 percent or more.
2.The FISC income can get an even longer tax deferral than the DISC income.
3.Compliance with the DISC's assets test can be greatly eased.
[~95l6.2] ADDITIONAL INCOME
FOR THE DISC
A FISC provides additional income for the DISC. Sometimes the increase is as much as 100 percent or even more. This additional income results from an indirect c application of the DISC pricing rules.
(1) Pricing Rules Don't Apply Directly The special DISC pricing rules generally enable the DISC to earn 4 percent of the gross receipts from export sales or half the combined, taxable income from such .3 transaction, whichever is more. The special pricing rules apply to sales made to or through the DISC.4 As a result; sales to a FISC or to another foreign customer are included. However, only the transaction with the direct and immediate customer is taken into account under the special pricing rules. The profit on later transactions must be figured separately.
Consider the following situations: D The supplier sells goods to a DISC, which resell the goods to a FISC, then to ...
Footnote references start at the end of this analysis.
@ 1981 P-H Inc.-U.S. Taxation of International Operations