§994 Inter-company Pricing Rules

Summary

When a person sells export property to a DISC, the taxable income for both the DISC and the seller must use a transfer price that limits what the DISC reports. The DISC’s income from the sale cannot be more than the largest of three amounts: 4 percent of the qualified export receipts plus 10 percent of the DISC’s export promotion expenses for 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 Secretary must create rules that apply the same ideas to commissions, rentals, and other income and that say how to split costs when a DISC is building or keeping an export market. “Export promotion expenses” means costs to help sell or distribute goods outside the United States, not including income taxes. It also includes 50 percent of freight costs for shipping on U.S.-owned planes or U.S.-documented ships when the law does not force use of those carriers.