Delegate to Congress Donna Christian Christensen and her Guamanian counterpart have fired off letters to the House Ways and Means Committee following an announcement by the Clinton Administration of its proposal to amend the Foreign Sales Corporation program.
Christensen and Delegate Robert Underwood of Guam wrote to leaders of the Ways and Means Committee to remind them of the importance of the FSC program to the economies of respective territories. In the V.I. alone, the FSC program generates approximately $7 million annually in franchise taxes.
A key component of the present FSC program is the ability of U.S. companies to lower their U.S. income tax liability by channeling their export income through foreign sales corporations. Congress established the FSC system as an alternative to a previous program to which U.S. trade partners, particularly the European Union, 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.
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 revenues generated from FSC franchise fees, additional income is generated in the territories by banks that may hold FSC funds as well as by hotels and retail establishments that benefit from local annual meetings of FSC directors and shareholders.
Christensen said that in the last two months she has met with the U.S. Trade Representative and the Treasury Department twice to discuss how the new FSC program would continue to provide the same advantages that the territories currently enjoy.
