Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Frank Landreneau, one of our International Tax Directors. Frank, welcome back to The Playbook.

Frank: Thanks, Jen. It’s great to be back.

Jen: We’ve been talking about IC-DISC, and last time we talked about tax reform. What’s changed strategy wise since before tax reform and now after tax reform?

Frank: I think with IC-DISC it’s kind of a Back to the Future type of thing, because when the IC-DISC came out, it was really meant to be a deferral tactic and to really get tax advantages, because you’re deferring the recognition of the IC-DISC income, or really, the export income. Continue Reading Your IC-DISC Strategy: Does it Need to Change?

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Frank Landreneau, one of our International Tax Directors. Frank, welcome back to The Playbook.

Frank: Thanks, Jen. It’s great to be back.

Jen: I know there’s an incentive for exporters: IC-DISC. How has that changed with tax reform?

Frank: That’s a good question. It’s been around for quite a while, as you know, the IC-DISC is nothing new. What propelled its novelty is the tax reform of 2003 where dividend rates were now coupled with capital gains rates. There’s been legislation on and off of repealing it or modifying it or limiting it in some kind of way, but oddly enough, tax reform did not change anything with regard to IC-DISC, so it’s still a viable option for exporters.

Jen: So Frank, how can the IC-DISC be helpful for our viewers?

Continue Reading How Your Business Can Benefit from IC-DISC

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Frank Landreneau, one of our international tax directors. Welcome back to the Playbook, Frank.

Frank: Well thanks, Jen. Great to be back.

Jen: I know you talk a lot about IC-DISC; how is that impacted by tax reform and can you give us a little overview of IC-DISC again?

Frank: That’s a great question. Kind of backing up, what IC-DISC is it’s a vehicle to provide tax incentives for exports. It’s rather dated – it was originated in the 1970s – but more recently it was used because of the difference between capital gains tax rates and dividends tax rates. Now the dividends tax rates are the same as capital gains rates, it was used to a rate arbitrage. The way it basically was you had to actually set up an IC-DISC entity; let that entity be the exporting entity.

There are different variations, whether a commission DISC or a buy/sell DISC – most people are using the commission DICSs – and the reason was that you didn’t have to change operating procedures around exports and it provided a nice tax benefit. Fortunately the tax reform did not change or repeal the IC-DISC, so that actually is still the law.

Jen:  Great, great. And so are there any considerations from tax reform that do impact it? Has it changed any rates or what does that look like?

Frank: That’s an equally great question. The answer is the benefit with the IC-DISC was really in the rate arbitrage. So now with the changing rates – so if you were an exporting company with an IC-DISC, your effective corporate rate has just gone from 34% or 35% to now 21%. So the rate arbitrage using IC-DISC is not as great – in fact it may actually be nil. If you were using a flow-through entity like an S Corporation with an IC-DISC structure, then there was a rate arbitrage as well, and that’s actually still in play because the top rate for individuals is 37% versus the capital gains rates of 23.8%. So I would say if you have – if you’ve been using an IC-DISC and your operating company is a C Corporation at the 21% rate, I would say there are other strategies to look at.

One for example is the deferral strategy where you accumulate income in the IC-DISC. Now you run into issues with paying a minimum interest charge – where the IC comes in, interest charge – but the strategy around IC-DISC does change for C Corporations, because the rate arbitrage has changed.

Jen: Okay, now for tax planning purposes, are there any other considerations with the new tax reform law? Does anything else impact the IC-DISC?

Frank: I think in addition to what I said regarding the rate arbitrage change, particularly for C Corporations, there’s this new provision we talked about in earlier videos called FDII – the Foreign Derived Intangible Income – where that income is taxed at a 13.165%. That actually can be used side by side or along with the IC-DISC. There’s no double dipping, but there’s some interplay between those two tax relief provisions.

Jen: So if you’re doing exports or considering exporting these are some things you’ll need to be paying attention to?

Frank: Absolutely.

Jen: Perfect. Well, we’ll get you back to talk about some other international topics.

Frank:  Well, thank you. I’d love to do so.

Jen: To learn more about other international topics, visit PKFTexas.com/internationaldesk. This has been a Thought Leader production brought to you by PKF Texas the Entrepreneur’s Playbook. Tune in next week for another chapter.

https://vimeo.com/121468283

Karen: This is PKF Texas Entrepreneur’s Playbook and I’m Karen Love, I’m the host and Co-founder. So today I’m here with Frank Landreneau, one of our international tax directors, so I’d like to welcome you to the Playbook Frank.

Frank: Thank you Karen, it’s great to be here.

Karen: Thank you. Well you know we’re in Houston, international city and U.S. manufacturers and exporting, there may be some things that they need to know about that they’re not doing that you could share with us.

Frank: Right. Well one of the best kept secrets is a tax incentive that’s been around for a while but it’s gotten increased popularity over the last few years and it’s called the IC-DISC.

Karen: Wow. Okay, now that sounds very, very, very complex. So tell me about that.

Frank: It’s an acronym for Interest Charged – Domestic International Sales Corporation and it’s a tax incentive that allows tax payers to convert income at a lower tax rate.

Karen: Wow, now that sounds really complex, as I thought it was going to be.

Frank: It can be, it can be.

Karen: I would love for you to come back and do a series with us and explain how we can help companies do that at PKF Texas.

Frank: I’d love to. I’d love to talk about it in more detail.

Karen: Fantastic, look forward to having you back Frank.

Frank: Thanks Karen.

Karen: Thank you. We’ll talk more next week about the IC-DISC and for other international topics you can visit PKFTexas.com/InternationalDesk. This has been another Thought Leader production brought to you by the PKF Texas Entrepreneur’s Playbook.

Karen: This is PKF Texas Entrepreneur’s Playbook. I’m Karen Love, the Host and Co-founder. Today I’m here with Frank Landreneau, one of our International Tax Directors. Welcome back to the Playbook, Frank.

Frank: Great, glad to be here.

Karen: Well I’m excited that you’ve been here talking about IC-DISC and who should use it and what it is, but what I’m wondering is exactly how does it work?

Frank: Well Karen, that’s a great question because it can work in a lot of different ways. What we’ve found with our clients, the most simplistic way, is to set up something called a Commission DISC. And the way that works is that you set up an IC-DISC entity and you don’t have to disrupt any of your business operations by changing anything how you do currently.

Karen: Got it.

Frank: But the operating company will charge the IC-DISC a commission, the IC-DISC itself doesn’t pay tax but rather distributes its income to shareholders. The net effect of all that converts income that would ordinarily be taxed at regular tax rates to achieve capital gains for tax rates.

Karen: Wow, now that sounds like that works and it sounds like you know what you’re doing; very, very impressive. And so I’d like for you to come back and then maybe go into others ways that companies will deal with the life cycle of their international business.

Frank: I would love to do that. Export is usually the first step.

Karen: Wonderful, fantastic, look forward to it. For other international topics please visit PKFTexas.com/InternationalDesk. This has been another Thought Leader Production brought to you by the PKF Texas Entrepreneur’s Playbook.

Karen: This is PKF Texas Entrepreneur’s Playbook and I’m Karen Love, Host and Co-founder. Today I’m here with Frank Landreneau, one of our International Tax Directors, so we’d like to welcome you back to the Playbook.

Frank: Thank you, great to be here again.

Karen: Thank you, and last time you mentioned about the IC-DISC and I was wondering, can anyone set up an IC-DISC.

Frank: Well technically, but not everybody can qualify. Usually IC-DISC benefits manufacturers and distributors who sell tangible personal property such as inventory, primarily targeted for export.

Karen: Okay, so the type of company manufacturing and distributors, anything else about that or the timing of when they need to do this?

Frank: The interesting part of it is that the goods primarily have to be manufactured in the U.S., so those manufacturers that have a lot of foreign content typically may not qualify. With regard to the timing, the sooner the better; the IC-DISC is a special purpose vehicle and the tax benefits are only derived while the IC-DISC is in place.

Karen: Wow. Now this is very complicated for a layperson so I’m going to ask that you come back and explain in detail how this is done if you don’t mind doing that.

Frank: Perfect, I’d love to do that.

Karen: Fantastic, thank you. So we’re going to talk more next week about the IC-DISC and for other international topics visit PKFTexas.com/internationaldesk. And this has been another Thought Leader Production brought to you by PKF Texas Entrepreneur’s Playbook.

Karen: This is PKF Texas Entrepreneur’s Playbook and I’m Karen Love, I’m the host and Co-founder. So today I’m here with Frank Landreneau, one of our international tax directors, so I’d like to welcome you to the Playbook, Frank.

Frank: Thank you Karen, it’s great to be here.

Karen: Thank you. Well you know we’re in Houston, international city and U.S. manufacturers and exporting, there may be some things that they need to know about that they’re not doing that you could share with us.

Frank: Right. Well one of the best kept secrets is a tax incentive that’s been around for a while, but it’s gotten increased popularity over the last few years and it’s called the IC-DISC.

Karen: Wow. Okay, now that sounds very, very, very complex. So tell me about that.

Frank: It’s an acronym for Interest Charged – Domestic International Sales Corporation and it’s a tax incentive that allows tax payers to convert income at a lower tax rate.

Karen: Wow, now that sounds really complex, as I thought it was going to be.

Frank: It can be, it can be.

Karen: I would love for you to come back and do a series with us and explain how we can help companies do that at PKF Texas.

Frank: I’d love to. I’d love to talk about it in more detail.

Karen: Fantastic, look forward to having you back Frank.

Frank: Thanks Karen.

Karen: Thank you. We’ll talk more next week about the IC-DISC and for other international topics you can visit www.PKFTexas.com/internationaldesk. This has been another Thought Leader production brought to you by the PKF Texas Entrepreneur’s Playbook.

 

Note: Running most Fridays in FromGregsHead.comis a continuing series of tips brought to you by Greg Price. These run Saturday mornings during the BusinessMaker’s Radio Show on Supertalk 97.5. Audio files can be found on the Entrepreneur’s Playbook page of the PKF Texas website.

If exporting internationally is a part of your business, you have most likely heard about changes to the federal income tax laws repealing many exporter benefits. Despite the repeal, there are still several tax benefits available for exporters.

One export benefit called Interest Charge – Domestic International Sales Corporation or IC-DISC, is still available to closely held export companies. 

IC-DISC is an export incentive vehicle which effectively allows exporters to defer a portion of their export income from current federal income taxation.

There are several key ways IC-DISC can help your business depending on how much of your income is export-based:

  1. It can minimize double taxation on a portion of export income
  2. It can reduce your overall effective tax rate
  3. It can help you redeploy cash into your business to create wealth

To learn more about IC-DISC and to see how it may apply to your Company, download the white paper from www.pkftexas.com/ic-disc.

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Frank Landreneau, one of our International Tax Directors. Frank, welcome back to The Playbook.

Frank: Thanks. It’s exciting to be back.

Jen: I know there’s been some new changes to the Foreign-Derived Intangible Income, or FDII, as we’ve been calling it, that released in early March. What do we need to know about the new changes?

Frank: That’s right. Even though it’s interesting about this new tax law is that, even though it was passed a little over a year ago, guidance is still trickling in. Even though a law has been on the books, usually you do planning on a go-forward basis. There is some planning to go back and see about opportunities you may not have had.

Continue Reading Following Up on FDII Changes from March 2019

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Frank Landreneau, one of our International Tax Directors. Frank, welcome back to the Playbook.

Frank: Thanks, Jen. It’s great to be back.

Jen: A couple of episodes back we talked about the Foreign Derived Intangible Income incentive. How does that work?

Frank: It’s a pretty convoluted calculation. First, as we talked about last time, a company will identify its gross receipts related to this Foreign Derived Intangible Income – we call it FDII for short.

Jen: FDII, I like that.

Frank: And then, you allocate associated deductions to arrive at net income, and then you look at what is normally looked at as a normal return for a company, which is mechanically derived, is 10% of the adjusted tax basis of the assets. And then, any profits above and beyond that on this income would be excess profits subject to a special rate of tax, which would be 13.125%.

Jen: Ok, so what should companies be doing about this?

Frank: One thing would be to take a look at how they source products. If they’re sourcing product from overseas, could they get it in the United States? Or, if you are, let’s say, a U.S. subsidiary of a foreign multinational, can the foreign multinational source those goods from the United States?

Jen: So, how might this apply to services? We talked about services on a different episode as well.

Frank: A service is also an interesting thing, and we don’t have a whole lot of guidance on that just yet, but essentially it would work the same way. The interesting part is that it does not indicate in the law currently that the services actually have to be performed within the U.S. So, theoretically, they could be performed outside the U.S. as long you are not outside the U.S. long enough to create what we call a permanent establishment. In that case, it would be called branch income; it would not qualify. Intermittent services, like oilfield services, where you may be providing services for a two-week, three-week period but you don’t have a home office there, might apply to this FDII income.

Jen: So, they really should reach out to us and find out if it applies. Now, I know you’ve talked about IC-DISC in the past. Does the FDII impact the IC-DISC at all?

Frank: Interestingly enough, in the tax law change, IC-DISCs were untouched. You can actually use the IC-DISC incentive in conjunction with FDII. The thing to keep in mind is that FDII only qualifies if you are a C-corporation. If you are an S-corporation, sole proprietorship, partnership, you want to also take a look at your tax structure, because this only qualifies for C-corporations.

Jen: Frank, we’ll get you back to talk about that again. Thanks.

Frank: I’d love to come back. Thank you.

Jen: To learn more about other international topics, visit pkftexas.com/internationaldesk. This has been another Thought Leader Production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.