The U.S. Treasury Department has pledged that the territory won’t lose any monetary ground when Congress retools the Foreign Sales Corporation program, according to Delegate to Congress Donna Christian Christensen.
While Christensen didn’t go into detail during an interview on WSTX radio Tuesday, she said the Treasury will make the territory "whole" following the closure of the FSC program and the ensuing loss of $7 million to $10 million a year in licensing fees and ancillary revenue.
"The Virgin Islands will be compensated for the loss," Christensen said.
Last week, the House Ways and Means Committee voted to end the FSC program at the behest of the World Trade Organization. Earlier this year, the WTO appellate body upheld a decision that the FSC program represented a tax subsidy forbidden under WTO rules. Congress must create new FSC legislation by Oct. 1.
Christensen said at one point Congress was considering, but rejected, an approach that wouldn’t have met WTO guidelines. Ensuing litigation would have bought some time for the U.S. to consider other alternatives.
Instead, the option chosen by Ways and Means – a "single entity" approach – is similar to the existing FSC program but would not require U.S. companies to establish a separate, special structure to handle foreign source income.
The Virgin Islands has about 3,500 FSCs registered here.
Although the millions of dollars collected in FSC revenue would dry up under the single entity scheme, "There will remain a window of opportunity for the Virgin Islands to participate with these companies under the new agreement," Christiansted said.
"It will still provide a few jobs and revenue," Christensen said. "We think this is the best that could be done under the WTO rules."
A key component of the FSC program is the ability of U.S. companies to lower their U.S. income-tax liability by channeling their export income through foreign sales corporations. Congress established the FSC system as an alternative to a previous program to which U.S. trade partners, particularly the European Union, had objected.
Exporters began using FSCs – offshore subsidiaries – in 1985. A portion of the export sales run through the FSC is exempt from federal taxes.
Along with the revenues from franchise fees, FSCs generate income in the territory from banks that hold FSC funds and hotels and other businesses that benefit from local annual meetings of FSC directors and shareholders.
