Corporate tax legislation that replaces a controversial export subsidy is expected to benefit U.S. manufacturers selling internationally and allows domestic manufacturers to take advantage of new deductions, Yelena Epova of the Atlanta-based accounting and consulting firm, Habif, Arogeti & Wynne LLP, told GlobalAtlanta.
The new legislation was passed in the face of a World Trade Organization ruling that a $5 billion annual subsidy for U.S. exporters was illegal. As a result, 1,600 American exports to Europe have been hit by penalty tariffs that stood at 12 percent and were rising by one percentage point a month.
“Manufacturing companies selling internationally will most likely end up in the same position with the new law as the old law,” Ms. Epova said.
Although the old law, the Extraterritorial Income Act, favored U.S. exporters, manufacturers and distribution companies, the new law favors domestic companies and eliminates deductions for distribution companies, she explained.
Ms. Epova recommended that distribution companies selling to foreign countries speed up their foreign sales if possible because the deductions are to be phased out by 2006.
According to Steve Horn, a partner in the accounting firm of Williams Benator & Libby LLP, another provision of the new law creates a one-year window for certain U.S. companies to exclude from taxable income 85 percent of cash dividends received from their foreign subsidiaries. If they qualify, the federal tax rate on those dividends would effectively be 5.25 percent for those companies otherwise paying at the 35 percent level, he said.
“The increased tax deduction may result in companies reinvesting their savings, thereby stimulating the domestic economy,” he said.
Ms. Epova may be reached by calling (404) 898-7431 and Mr. Horn at (770) 512-0500.