What's New No. The US will now have to bring to an end this long-standing scheme of income tax relief, which was found to be an illegal export subsidy as it exclusively reduced the tax liability of US companies exporting US goods. The Panel calls on the US to abolish this system before October 1, 2000. Background FSCs are subsidiaries of US corporations which carry out export sales on behalf of US parents.
Income attributed to FSCs is partly exempt from corporate income tax.
In a foreign trade perspective, it is important that the tax exemption is conditional upon exports. Such export subsidies, which in addition are only available if a large part of the exported item has been manufactured in the US, are prohibited under the WTO rules. Furthermore, when granting FSC benefits to agricultural products covered by the WTO Agreement on Agriculture, the Panel considered that the US has not adhered to the obligations under this Agreement. FSC are foreign subsidiaries created to promote the export of their parent US company's products and services. A large part of the income channelled through these corporations is exempt from US income tax.