Question: What are the tax benefits to be gained by using a DISC?
ANSWER: The tax benefits of the IC-DISC come in two separate fashions. The IC-DISC shareholders may leave the IC-DISC profits in the IC-DISC and defer taxation until actual distribution of the profits or the IC-DISC may distribute profits to its shareholders like any other corporation.
Since IC-DISC distributions are considered "qualified dividends", they are subject to a maximum tax of 20%. Thus the magic of the IC-DISC is to provide both tax deferral and to apply a 20% maximum dividend tax rate to profits that would otherwise be taxable in the U.S. taxpayer’s highest brackets that can range as high as 50% when city, state and federal income taxes are calculated.
ANSWER: Export property means property: Manufactured, produced, grown or extracted in the United States; held for sale, lease or rental, in the ordinary course of business, for use, consumption or disposition outside the United States; and Not more than 50% of the fair market value of which is attributed to articles imported into the United States.Question: What is the definition of "Export Property" that will qualify for DISC treatment?
Question: What methods of pricing may be used to determine the amount that can be paid to a DISC?
ANSWER:
Gross Receipts Methods. Under the gross receipts method of pricing, the transfer price for a sale by the related supplier to the DISC is the price as a result of which the taxable income derived by the DISC form the sale will not exceed the sum of (i) 4 percent of the qualified export receipts of the DISC derived from the sale of the export property and (ii) 10 percent of the export promotion expenses of the DISC attributable to such qualified export receipts.
Taxable Income Method. Under the combined taxable income method of pricing, the transfer price for a sale by the related supplier to the DISC is the price as a result of which the taxable income derived by the DISC from the sale will not exceed the sum of (i) 50 percent of the combined taxable income of the DISC and its related supplier attributable to the qualified export receipts form such sale and (ii) 10 percent of the export promotion expenses of the DISC attributable to such qualified export receipts.
Arm's Length Method. If the rules of the preceding paragraphs are inapplicable to a sale or a taxpayer does not choose to use them, the transfer price for a sale by the related supplier to the DISC is to be determined on the basis of the sale price actually charged but subject to the rules provided by the rules of sale between related parties.
