The Tax Aspects of Exportation: A Decision Model Approach.

Abstract The purpose of this paper is to develop decision models that can be used to determine whether one of the tax-favored export entities described in the Internal Revenue Code should be utilized and, if so, which one is the most favorable. Since the interest-charge domestic international sales corporation (DISC), a tax deferral vehicle, and the foreign sales corporation (FSC) and small foreign sales corporation (SFSC), tax exemption vehicles, involve different cash flow patterns, the models consider the time value of money, among other things. The models are analyzed using different levels of selected variables. The break-even sales volume of exporters was found to be especially sensitive to profit margin assumptions and the spread between the cost of capital and the T-bill rate. Exporters that switch from a DISC to a FSC when export sales begin to increase may be able to increase the present value of their after-tax profits.