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Definition: Foreign Sales Corporation FSC
Foreign Sales Corporation is a non-operational provision in the US Federal income tax code which allowed reduced taxes for income from sales of imported goods by US companies through use of an offshore subsidiary (or FSC)
The provision of Foreign Sales Corporation was to stimulate U.S. exports as firms that sold their exports through sales subsidiaries (FSCs) were exempted somewhere between 15% and 30% of their export income from federal tax. This structure was created by Tax Reform Act of 1984 and previously called Domestic International Sales Corporation (DISC).
However this provision was eliminated by Extraterritorial Income Exclusion Act in 2000 as the FSC was disputed by several countries because it constituted a prohibited export subsidy under the GATT.A subsidiary entity in a foreign country had to be used for the purpose of selling the exported goods.
For a subsidiary to qualify as a FSC it had to
Maintain its office and books of account in a country that had the exchange of information agreement with the US
At least one director would have to reside in the country of the office
Income should have to be derived from export of US goods or services
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