§994 — Title 26 Internal Revenue Code | U.S. Code

§994 Inter-company Pricing Rules

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter N— Tax Based on Income From Sources Within or Without the United States › Part IV— DOMESTIC INTERNATIONAL SALES CORPORATIONS › Subpart A— Treatment of Qualifying Corporations › § 994

Last updated Apr 6, 2026|Official source

Summary

When a company sells export goods to its own DISC — a special export sales corporation — the price between them is set by formula, no matter what was actually charged. The DISC's taxable income from the sale cannot exceed the greatest of three amounts: 4 percent of the qualified export receipts plus 10 percent of the DISC's export promotion expenses, 50 percent of the combined taxable income of the DISC and the related company plus 10 percent of those promotion expenses, or the income based on the actual sale price. Export promotion expenses are costs of marketing export goods abroad (not income taxes), and they include half the cost of shipping on U.S.-owned planes or U.S.-flagged ships when using them is not legally required.

Title 26, §994

Internal Revenue Code — Source: USLM XML via OLRC

(a)In the case of a sale of export property to a DISC by a person described in section 482, the taxable income of such DISC and such person shall be based upon a transfer price which would allow such DISC to derive taxable income attributable to such sale (regardless of the sales price actually charged) in an amount which does not exceed the greatest of—

(1)4 percent of the qualified export receipts on the sale of such property by the DISC plus 10 percent of the export promotion expenses of such DISC attributable to such receipts,

(2)50 percent of the combined taxable income of such DISC and such person which is attributable to the qualified export receipts on such property derived as the result of a sale by the DISC plus 10 percent of the export promotion expenses of such DISC attributable to such receipts, or

(3)taxable income based upon the sale price actually charged (but subject to the rules provided in section 482).

(b)The Secretary shall prescribe regulations setting forth—

(1)rules which are consistent with the rules set forth in subsection (a) for the application of this section in the case of commissions, rentals, and other income, and

(2)rules for the allocation of expenditures in computing combined taxable income under subsection (a)(2) in those cases where a DISC is seeking to establish or maintain a market for export property.

(c)For purposes of this section, the term “export promotion expenses” means those expenses incurred to advance the distribution or sale of export property for use, consumption, or distribution outside of the United States, but does not include income taxes. Such expenses shall also include freight expenses to the extent of 50 percent of the cost of shipping export property aboard airplanes owned and operated by United States persons or ships documented under the laws of the United States in those cases where law or regulations does not require that such property be shipped aboard such airplanes or ships.

Editorial Notes

Amendments

1976—Subsec. (b). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

§994 Inter-company Pricing Rules

Summary

Title 26, §994

Notes & Related Subsidiaries

Editorial Notes

Amendments

Citations & Metadata