(Domestic International Sales Corporation)
by Walter M. Seltzer
The Domestic International Sales Corporation legislation
was enacted, on December 10,1971, to provide U.S.
firms with a tax incentive to encourage their increased
export activity. The United States has suffered a steadily
worsening balance of payments position; the Interest
Equalization Tax and, subsequently, the Foreign Direct
Investment Program are evidence of the concern over
the recurring large deficits. Had it not been for her trade
surplus, the international payments deficits of the U.S.
would have been much greater. But that trade balance
has declined steadily in the past several years. DISC is
designed to enhance the competitive position of the U.S.
producer in the international marketplace and thereby
help reverse the unfavorable trend in those balances.
A nonmanufacturing or producing U.S. corporation
which has only one class of shares with a value of at
least $2,500 and which meets certain tests with regard
to its receipts and assets—substantially all receipts and
assets must be "export-related"—can elect to be a
DISC. Once a valid election is made, tax may be deferred
on one half of the corporation's export profits; the other
half is currently taxable to its shareholders as a dividend,
whether or not actually distributed. A U.S. manufacturer,
regardless of its relationship to the DISC, can
borrow the DISC'S tax-deferred profits—the producer's
loan—for use in the U.S.