The Turnbull-James administration is lobbying hard to maintain the existence of Foreign Sales Corporations in the territory to preserve millions in revenue each year.
Last month, an appeals panel of the World Trade Organization ruled that FSCs, a U.S. tax-break scheme on industrial and agricultural exports, were an export subsidy and therefore violated global free trade rules.
Approximately 3,500 FSC are registered in the territory, said Lt. Gov. Gerard Luz James II, who as lieutenant governor has oversight for FSCs. He said the program has generated more than $69 million for the V.I. Treasury through franchise taxes over the last 15 years.
James has been lobbying the White House, the U.S. trade representative and members of the Congressional Black Caucus to help save the FSC program.
"Along with thousands of U.S. exporters, the Virgin Islands has unquestionably been a major stakeholder in the FSC program," James said in a release. "The territory can ill afford to lose the economic benefits of the FSC program, particularly when the local government is experiencing a substantial budgetary shortfall."
The WTO had ordered the U.S. to dismantle the FSC program by Oct. 1 of this year. Because the ruling is against the U.S., the territory has no direct status to appeal, James said.
On top of the taxes collected on FSCs here, the program has a trickle-down effect, James said. It uses local lawyers and accountants who then train and employ clerical and managerial staff who pay taxes locally. A derivative income is also earned by banks that hold FSC funds.
Congress established the Foreign Sales Corporation system as an alternative to a previous program to which U.S. trade partners had objected.
Exporters began using FSCs, offshore subsidiaries, in 1985. A portion of the export sales run through the FSC are exempt from federal taxes.
The European Union first signaled its intention to make a formal challenge to the FSC program in November 1997. A series of formal and informal discussions followed between the E.U. and the U.S., and the two sides reportedly were negotiating throughout much of the WTO process.
Many observers believe such negotiations will intensify now. Meanwhile, several U.S. accounting firms have been working for months to develop alternatives to the FSC that will continue to give U.S. exporters some sort of tax relief.
