The House of Representatives Tuesday passed legislation that effectively ended tax breaks for U.S. exporters using foreign sales corporations in the country’s territories.
The FSC Repeal and Extraterritorial Income and Exclusion Act ended the 15-year-old FSC program in the V.I., and with it about $10 million a year, said Delegate to Congress Donna Christian Christensen. In passing legislation, the House follows the U.S. Senate, which passed the bill just before it adjourned for the election two weeks ago. The bill now goes to the White House where President Clinton is expected to sign it because of possible trade sanctions by the European Union.
Earlier this year, the World Trade Organization’s appellate body upheld a decision that the FSC program represented a tax subsidy forbidden under WTO rules.
As the bill was being debated on the House floor, Christensen and Delegate Robert Underwood of Guam pointed out the negative effects that the repeal of FSC program would have on the territories. Christensen said that once the act becomes law, it "will mean a loss of nearly $11 million to the already depressed treasury of the Virgin Islands."
"Through no fault of our own, the Virgin Islands stands to lose hundreds of direct and indirect jobs in the FSC industry and millions in FSC franchise fees that the local government collects. This action by the EU to challenge our FSC program in the WTO could not have come at a worse time as our local economy continues to suffer from the effects of ten years of devastation from several killer hurricanes," she said
Christensen has said previously that the Clinton administration and the U.S. Treasury Department have pledged to replace the revenues that the Virgin Islands and Guam will lose as a result of passage of the bill. A new program that meets WTO guidelines is also being worked on.
Meanwhile, Lt. Gov. Gerard Luz James II, who oversees FSCs in the territory, said the V.I. has a year "before we lose anything." He added that last week he and administration attorneys attended a Washington, D.C. conference of tax professionals, U.S. exporters and Foreign Sales Corporation managers where the issue was the main topic of discussion
James said exporters were advised to remain in the Virgin Islands because the territory can still be considered the "safest harbor" for their companies. Exporters were reminded that they can perform their economic processes from the off-shore location and still remain in compliance with new legislation and qualify for tax benefits.
