The administration has devised a substitute for controversial tax incentives for U.S. companies that sell American-made goods overseas, Treasury Secretary Donald T. Regan and U.S. Trade Representative William E. Brock said yesterday.
The new plan was approved March 2 by the Cabinet Council on Commerce and Trade and will be sent to Congress shortly. It is designed to meet complaints that the present method of encouraging promotion and sale of U.S. goods overseas amounts to an illegal subsidy.
Such overseas promotions are achieved now through special tax code provisions that allow the formation of a domestic international sales corporation (DISC). Under DISC, companies can defer taxes on export income in an effort to push overseas sales.
But other trading nations have complained that DISC amounts to an illegal subsidy under the rules of the General Agreement on Tariffs and Trade (GATT). This argument has been raised with increasing frequency in recent years as the United States has become more aggressive in attacking other countries who subsidize exports.
The Reagan administration made a commitment to GATT on Oct. 1 that it would submit a proposal to replace DISC to the current session of Congress.
Brock, the president's chief trade negotiator, said the new administration alternative is consistent with America's obligation under GATT and will protect U.S. exporters from possible retaliation by importers of U.S. products.
The U.S. trade official added that the alternative plan was fashioned so that taxes paid by exporters are not increased while simplifying many of DISC's complex rules. It also takes no money from the treasury.
Changes in DISC have been opposed by exporters who feared they would lose some tax breaks currently available, and the Brock statement appeared designed to assure them and their congressional allies there would be no change in the amount of taxes they would have to pay.
Reflecting this potential opposition, Brock said he will continue consultations with business and members of Congress "to further refine the proposal." He said it still must be recast in legislative form.
The new proposal takes advantage of GATT rules that allow the exemption of income earned overseas from taxation--as long as there is arm's-length pricing between related domestic and foreign companies