International Incentives

 

FDII in ABGi

International Incentives Overview

 

Because of ABGi’s expansive international reach and experience, there are multiple incentives that our elite team of experts can help your company maximize.

 

These include:

  • Foreign Derived Intangible Income
  • IC-DISC
  • Transfer Pricing
  • Other International Concerns

 

Foreign Derived Intangible Income (FDII)

 

For the past 50 years, the Internal Revenue Code has included various incentives for USA companies to export goods and services manufactured domestically. The Tax Cuts and Jobs Act of 2017 is no different, as it includes the Foreign Derived Intangible Income (FDII) deduction in Section 250.

 

This is part of a new deduction that combines FDII with Global Intangible Low – Taxed Income (GILTI).  This significant deduction is the sum of 37.5% of FDII plus 50% of GILTI resulting in a large deduction.  Similar to Section 199, its limitation is based on Taxable Income.

 

From the beginning, ABGi has been an expert in both DPAD and IC-DISC, and this new program combines the two. As a result, over the past year, we have researched the law, IRS guidance, and other published opinions surrounding Section 250 to ensure that we are prepared to assist our clients.  We have discovered that this calculation is extremely complex, and there are numerous factors that must be considered to maximize the available benefit.

 

    • To implement this deduction successfully, multiple computations of taxable income must be performed.  At nine separate decision points, a maximization opportunity can be lost.
    • Domestic C-Corporations are allowed a 37.5% deduction based on the eligible income derived from property sold to any foreign entity, and which the taxpayer establishes is for foreign use; or for qualified services provided by the taxpayer to any person, or with respect to property, not located within the USA.
    • This deduction lowers the effective tax rate on income generated by qualified sales or services from 21% to 13.125%.
    • The Act combines the FDII deduction with the new GILTI provision, which results in a significant deduction of 37.5% of FDII plus 50% of GILTI. As with Section 199, this benefit is based upon an entity’s taxable income.
    • Since FDII and GILTI are new additions to the Internal Revenue Code, emerging positions will be challenged. An in-depth legal knowledge of the Treasury Regulations, DPAD, and IC-DISC will be critical to maximize these new benefits.

 

ABGi has been optimizing the long-standing export incentives for more than three decades. Our specialists have the unique expertise necessary to gather, assess, and organize the data necessary to take full advantage of the valuable incentives available.

Interest Charge – Domestic International Sales Corporation

 

The IC-DISC is the last remaining export incentive for privately held companies based in the USA.  An IC-DISC allows a company the opportunity to convert ordinary income into capital gains, allowing these profits to be taxed at a much lower rate.  If the USA company has a foreign parent, the tax savings from utilizing this mechanism can be substantial.

 

The IC-DISC practice of ABGi is comprised of professionals with decades of experience with the complicated computations.  Using transaction by transaction analysis, and product groupings, every client’s valuable IC-DISC benefits are fully optimized.

If a company has foreign ownership, the implementation of an IC-DISC within the corporate hierarchy, is the perfect alternative to expensive and exotic schemes designed to strip out US earnings that have consistently drawn scrutiny from the IRS.

 

Looking back to the open years is a simple process. Gathering the data and redetermining the commission expense could result in a significant cash benefit to the shareholders. Our team works closely with the incumbent service providers to assist with amending all the required returns, and accurately reflecting the revised commissions, dividends, or producer loans on these returns.

 

Our unique services include the following:

    • Evaluation of qualification for IC-DISC benefits
    • Structuring advice, IC-DISC election, and related-party sales and commission agreements
    • Technology-driven calculations that optimize tax benefits in current and prior years
    • Preparation of IRS Form 1120-IC-DISC and all related schedules
    • Representation in IRS audits

 

Here is a sampling  of success stories utilizing ABGi’s unique approach:

    • ABGi captured a $2 million cash tax benefit for a closely held exporter of logs and lumber.  This project required a comprehensive review of the prior tax filings and a recalculation of commission deductions.  A significant portion of the benefit was achieved by grouping related products.  The deficiency distribution approach was utilized to maintain the IC-DISC qualification. In addition, ABGi reviewed the existing producer’s loans and advised regarding additional deferral opportunities.
    • A closely held defense contractor engaged ABGi to optimize their IC-DISC benefit.   This project required an extensive review of qualified export sales and a technology driven calculation of commission calculations.  As a result of our approach, $4 million in additional benefit was achieved.
    • A US based manufacturer of heat exchangers was owned by a foreign parent based in Norway.  Utilizing ABGi’s proprietary approach, all of the profits from US operations were converted into dividends to the foreign parent, resulting in minimal taxable income for the US operation.
Transfer Pricing

 

The Internal Revenue Service and foreign authorities closely examine international transactions between related companies in different international locations. The transfer prices of any products, services, intangibles, and financial transactions between these companies receive extra scrutiny. To be compliant, a taxpayer must allocate the appropriate portion of the income to the correct entity and pay tax accordingly. A transfer pricing study offers reasonable cause for reliance in a tax audit.

 

A transfer pricing study analyses the market value of transferred goods and establishes inter-company pricing according to transfer pricing rules of the countries involved and domestic regulations This study serves not only as a foundation for determining the transfer prices. It also demonstrates proper intent to the tax authorities and proof of regulatory compliance.

 

ABGi assists with the preparation of the best strategy, considering all factors including the respective trade agreement/treaties for each country involved.  The reporting and documentation of this issue is critical in light of the global minimum tax being adopted worldwide and we are the solution that you need.