Change Country

International Businesses, Tax & Assurance Guidance

IC-DISC: Reducing US and Foreign Income Tax Liabilities

Posted on August 15, 2011 by

Tim Finerty

Tim Finerty

Share This

IC-DISC: Proper planning could reduce US and foreign tax income liabilities.

By implementing an IC-DISC strategy, a US subsidiary that is manufacturing or distributing US manufactured products for sale outside the US (including Canada and Mexico), can reduce its US tax burden. Proper planning is required to ensure the IC-DISC has been established correctly and to ensure the tax benefits are maximized each year.

IC-DISC Example 

  • A separate US corporation is formed that elects to be treated as an IC-DISC in accordance with the Internal Revenue Code
  • The US operating company pays a commission to the IC-DISC
  • The operating company expenses the commission paid to the IC-DISC, reducing its taxable income calculated at ordinary tax rates
  • By state, the IC-DISC is tax-exempt and pays no federal income tax on its commission income
  • The IC-DISC pays a dividend to the foreign corporate owner of the IC-DISC and the dividend may qualify for reduced treaty withholding rates depending on the content of the treaty. Caution:  This does not apply to all treaties that provide for a reduced rate of withholding on dividends

Requirements of an IC-DISC

  • The IC-DISC must be a US corporation with one class of stock of at least $2,500 of par or stated value
  • The corporation must elect to be treated as an IC-DISC within 90 days of incorporation
  • 95 percent or more of the gross receipts of the IC-DISC must be qualified export receipts
  • 95 percent or more of the assets of the IC-DISC must be qualified export assets, which include: export property, accounts receivable, temporary investments, and loans to producers
  • The export property must be sold or leased for direct use, consumption, or disposition outside the US
  • The export goods must be manufactured, produced, grown, or extracted within the US, with no more than 50 percent of the fair market value of the export property being attributed to goods imported into the US


Historically, the Interest Charge – Domestic International Sales Corporation (IC-DISC) has been a tool for deferring income for US tax purposes. In recent years, the IC-DISC has become a viable planning opportunity to reduce US income tax liabilities.

Share This

Tim Finerty

Shareholder, Industrial Automation

Tim provides tax, accounting and consulting support to help industrial automation companies maximize profitability.

Related Insights

Is Immediate R&D Expensing on The Horizon?

For the first time since 1953, taxpayers are not allowed an immediate deduction for R&E expenses and instead must capitalize and amortize such expenses. On March 17, 2023 a stand-alone bipartisan bill was reintroduced which would allow immediate expensing of R&D. Learn what this means for taxpayers.

by Sarah Russell

Transfer Pricing Basics for International Companies

The concept of transfer pricing addresses the amounts that related parties under common control charge one another for goods, services, or intellectual property. For example, the price charged by a parent company when it sells goods to its subsidiary is referred to as the transfer price. The central issue regarding transfer pricing is the tax obligation that may arise around these kinds of transactions when they cross two or more tax jurisdictions. 

by Nina Wang

Branch or Subsidiary? Using an EOR to Bridge the Gap

If your company is in the early stages of planning a global expansion, it is important to consider how entity taxation and access to workforce outside your home country can be connected when deciding how and when to execute your growth strategy. Operating in a new market directly as a foreign company or a subsidiary of a foreign company has different tax consequences and compliance costs. Using an Employer of Record (EOR) can help.

by Teresa Gordon

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content