Mirshab, Bahman
September 2000
Multinational Business Review (St. Louis University);Fall2000, Vol. 8 Issue 2, p59
Academic Journal
To alleviate the burden of the heavy taxation of income in the United States creative solutions have been devised, some of which were introduced by legislation, some of which may be termed" loopholes." For example, the Revenue Act of 1971 introduced a system of tax deferral for a new type of corporation called a Domestic International Sales Corporation (DISC). Under these rules, the DISC's earnings were not taxed, but were taxed to the stockholders when distributed or deemed distributed. The Foreign Sales Corporation Act of 1984 was signed into law on July 18, 1984 as part of the Deficit Reduction Act of 1984. The DISC was considered by major U.S. trading partners as a way to subsidize U.S. companies. This was in violation of the General Agreement on Tariffs and Trade (GATT) which prevents countries from using taxes as a form of subsidy. This law replaced the DISC with the new Foreign Sales Corporation (FSC). Unlike its DISC predecessor, the FSC must satisfy a number of requirements. In the recent past, there was a ruling against the United States because income earned abroad was not fully taxed, thus creating a form of subsidy.


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