U.S. companies with international operations should act quickly to take advantage of an exclusion to reduce their income tax liability significantly before it is abolished by the U.S. Congress, Yelena Epova, senior international tax manger with an Atlanta-based accounting firm, told GlobalFax.
Congress passed the Extraterritorial Income Exclusion (EIE) in October 2000 to replace the Foreign Sales Corporations (FSCs), which were condemned by the World Trade Organization (WTO) as illegal export subsidies.
The WTO now also has condemned the EIE, and Congress is drafting new legislation that would do away with this exclusion. “We aren’t certain whether the legislation will apply to 2003, but we believe that it will not be retroactive. Exclusions for 2000-2002 will continue to apply,” Ms. Epova said during an interview here.
Besides traditional exporters, the exclusion may benefit companies with income from engineering or architectural services for construction projects outside the U.S. dating back to 2000, she said.
In addition, she said that companies with leasing or rental income from lessees outside the U.S. and software development companies that license software for foreign use may also benefit.
“The only action that a qualifying company needs to take is to fill out the appropriate forms to get the exclusion,” she said, adding that some income tax returns may need to be amended for 2000-2002 to claim the exclusion.
Qualifying companies, she added, are able to exclude from taxable income either 1.2% of foreign trading gross receipts, 15% of foreign trade income or 30% of foreign sales or leasing income, depending on the circumstances.
EIE benefits also may apply to companies that are not direct exporters but sell products domestically, which are exported to foreign countries by another exporter.
To learn more about the EIE, Ms. Epova may be reached by calling Habif, Arogeti & Wynne LLP at (404) 898-7431 or send an email to HYPERLINK mailto:yelena.epova@hawcpa.com yelena.epova@hawcpa.com