Delegate to Congress Donna Christian Christensen and her Guamanian counterpart have fired off letters to the House Ways and Means Committee following an announcement that the Foreign Sales Corporation program will be amended.
Christensen and Delegate Robert Underwood of Guam reminded leaders of the committee of the importance of the FSC program to territorial economies. In the V.I. alone, the program generates approximately $7 million annually in franchise taxes.
Exporters began using FSCs, offshore subsidiaries, in 1985. A portion of the export sales run through an FSC is exempt from federal taxes.
Earlier this year, the World Trade Organization’s appellate body upheld an earlier decision that the FSC program represents a tax subsidy, forbidden under WTO rules. Congress must vote on legislation to create a new FSC law by Oct. 1.
"Because the Virgin Islands and Guam have a tax-free relationship with U.S. taxing authorities and are under the jurisdiction of U.S. courts, we have become a natural area to set up rules and regulations to franchise FCSs," Christensen and Underwood said in their letters. "The already ailing local economies of our respective districts cannot afford to lose the substantial economic benefits of the FSC program."
Along with the income generated from FSC franchise fees, local banks make money by holding FSC funds, while hotels and retail establishments benefit from annual meetings of FSC directors and shareholders.
In the last two months, Christensen said she has met twice with the U.S. Trade Representative and the Treasury Department to discuss how the new FSC program could continue to provide the advantages that the territories currently enjoy.
Congress established the FSC system as an alternative to a previous program to which U.S. trade partners, particularly the European Union, had objected.
