The Congressional debate over the future of the Extraterritorial Income Exclusion, or ETI, which provides a tax break for exporters, is at a feverish pitch while the decades-old provision will expire on Jan. 1, 2004.

            The ETI exclusion that provided the tax break for exporters has been ruled an illegal subsidy by the World Trade Organization after being attacked by the European Union.

Congress is in the midst of a debate concerning alternative forms of tax relief. ETI is doomed in its current form because no one wants to be responsible for $4 billion of sanctions that would be imposed by the EU.

But whether alternative forms of tax relief will be legislated remains in doubt, according to several accounting firms contacted by GlobalFax.

“The WTO response to tax breaks for U.S. exporters is part of an ongoing battle between the U.S. and the European Union,” said Ray Shaw, principal in the Dallas office of Ernst & Young U.S. LLP’s customs and international trade practice.

“The EU protests about export subsidies to U.S. manufacturers while the U.S. complains about agricultural subsidies given to European farmers.”

“Our firm’s manufacturing clients are monitoring two proposed plans and do not plan to take specific action until they see what type of incentives will be put in place,” said Nancy Millett, Deloitte & Touche LLP’s Southeast region manufacturing practice leader, who is based in Atlanta.

“Exporters with domestic manufacturing operations could be hit the hardest as the cost of doing business will suddenly increase,” said Yelena Epova, senior international tax manager in the Atlanta office of Habif, Arogeti & Wynne LLP.

“It is difficult to predict the details of future tax legislation but we hope that some form of tax cuts will benefit U.S. exporters by the end of the year, said Ms. Epova.

Companies can still take advantage of the current ETI tax breaks until Dec. 31, and may also amend their taxes for the years 2000-02, she added.

Meanwhile, the Bush administration is looking for legislation that will not increase the government deficit.

For more information contact Ms. Epova at (404) 898-7431, Ms. Millett at (404) 220-1382 or Mr. Shaw at (214) 969-8590.