Extraterritorial Income Exclusion Regime Tax Update

As most of you know, the extraterritorial income exclusion regime generally allows taxpayers to in essence reduce the net income on foreign sales by 5 to 10 percentage points.  The countries that make up the European Union (EU) have claimed that this extraterritorial income regime is nothing more than an export subsidy and in violation of World Trade Organization (WTO) agreements.  

The WTO on January 14, 2002, held that the extraterritorial income provisions in the U.S. tax code illegally subsidize American exports.  Currently, the EU and the WTO are looking into allowing the EU countries to levy tariffs on U.S. goods in retaliation.  Under the Andean Trade Preference Act (HR 3009) signed by President Bush on August 6, 2002, the Bush administration has been directed by Congress to renegotiate trade rules with WTO to preserve the extraterritorial income regime without incurring penalties.  Feeley & Driscoll, P.C. will keep you informed of any progress in this area.

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