§994 Inter-company Pricing Rules

Summary

When a person sells export property to a DISC, the taxable income reported for both the DISC and the seller must use a transfer price that limits the DISC’s taxable income to the largest of three amounts: 4 percent of the qualified export receipts from that sale plus 10 percent of the DISC’s export promotion expenses tied to those receipts; 50 percent of the combined taxable income from those receipts plus 10 percent of those export promotion expenses; or the taxable income based on the actual sale price (subject to the rules in section 482). The Treasury Secretary must write rules that apply the same ideas to commissions, rentals, and similar income and that explain how to allocate costs when a DISC is trying to build or keep an export market. Export promotion expenses are costs to help sell or distribute exported goods outside the United States (they do not include income taxes) and include 50 percent of freight costs for shipping on U.S. planes or U.S.-documented ships when shipping on them is not required.