Our experience indicates that over 80% of middle-market companies that are granted export tax incentives do not claim them.

Even though it ended in 2006, ETI benefits are still available for all open tax years allowed most U.S. taxpayers. As such, these deductions are available to U.S. companies that exported products or provided engineering and architectural services outside of the U.S. from 2004 to 2006, and may be realized in the form of a cash refund on taxes already paid.

What is the ETI?
Similar to other countries, the U.S. government has provided benefits for export-related sales activities within its tax laws. These benefits have been offered since the 1980’s and for most of that time they were provided under the Foreign Sales Corporation (FSC) regime. Although over time various countries tried to eliminate the legality of these benefits, it was not until 2000 that the European Union succeeded in having the Foreign Sales Corporation regime declared a prohibited subsidy by the World Trade Organization.

Because of these rulings and objections, President Bill Clinton signed the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 on November 15, 2000. This act repealed using the FSC as a method of providing foreign export tax benefits for corporations, replacing it with IRC Code §114. Under IRC Code §114 and the ETI regime, a portion of income deemed to arise in a foreign jurisdiction for transactions that occurred after September 30, 2000, can be excluded from total gross income for tax purposes.

Because of continued pressure from the European Union and rulings by the World Trade Organization, the Extraterritorial Income Exclusion Act of 2000 was changed on October 22, 2004. Under this modification, the ETI regime was set to phase out in 2007, with decreasing benefits in 2005 (80% of qualified foreign sales) and 2006 (60% of qualified foreign sales).

While originally serving as a tax deduction, because the ETI regime is currently applied retroactively to all open tax years, it serves as a tax reimbursement for export activities already performed by companies. This offers substantial financial incentives to businesses of all sizes in practically all commercial, engineering, and management activities to review where their ultimate sales may have taken place to see if already paid taxes could be recuperated.

Identifying export sales provides a basis for ETI recovery; however, due to the scope and complexity of the tax code, the task of actually obtaining and maximizing ETI benefits is another story. This is why, while available to all qualifying taxpayers, smaller and midsize companies who were less familiar with the export deduction lacked the expertise to determine how they could benefit from them.

ETI Tax Recovery Eligibility
Any U.S. company that was involved in exporting is potentially eligible to retroactively claim ETI benefits for federal income tax purposes, obtain significant cash refunds, and establish an alternate methodology to continue claiming these types of benefits under a different tax regime in future years.

While not every export qualifies under the ETI regime, as long as income is derived from goods that were:

• Manufactured, produced, grown, or extracted within or outside the United States
• Held primarily for sale, lease, or rental, in the ordinary course of trade or business for direct use, consumption, or disposition outside the United States
• Not more than 50% of the fair market value of these goods attributable to: articles manufactured, produced, grown, or extracted outside the United States; or direct costs for labor performed outside the United States

Our Approach
Based on the principles underlying ETI benefits available at the federal level, our approach at FortisTCS has helped hundreds of eligible companies claim and maximize these tax benefits, whether they've never claimed ETI benefits or have been claiming them for years.

1. Never Claimed ETI Benefits
   If you've never claimed ETI Tax benefits, our approach is phased. After each phase, you decide, based on the results of the previous phase, whether and how you want to proceed.
• Feasibility Study/Assessment (estimate benefit/cost to claim credits)
• Calculate actual credits
• Prepare tax forms and returns
• Document qualified costs and activities
• Develop and implement procedures and methodologies to identify, document, and calculate future credits
• Manage and support exams, appeals and litigation
2. Already Claimed ETI Benefits
   If your company already claims ETI deductions, you may still need a full-scale export tax benefit study.

   Our experience has proven that the majority of companies who have claimed ETI deductions have not taken full advantage of the benefits available to them. By analyzing each cost and profit source related to exports, more often than not, incremental export tax benefits are likely to be achieved.

Pricing Assessment
A high percentage of corporations use an “aggregate” method to determine their benefit. Depending on the company’s variability in profitability and other factors, the company’s tax benefit is most likely not being maximized under this approach. FortisTCS offers a basic assessment of the potential benefits of using a more sophisticated pricing strategy (Transaction-by-Transaction, marginal costing, more specific product grouping, etc.) with readily available data. In addition to the basic assessment, FortisTCS can provide you a feasibility study to decide if a more sophisticated pricing strategy would be viable given the company’s available data and circumstances.

Calculation Review
Our professionals have reviewed hundreds of calculations; over 80% of the calculations we've reviewed have had errors, even those prepared by big accounting firms. These errors are a result of law changes, the mistaken use of previous years’ files and data, utilizing incorrect calculation methods, etc. Often, very quickly detected, these errors, when corrected, have generated companies hundreds of thousands of dollars for a fraction of the cost. We have also helped companies identify non-qualified export sales erroneously included in their claims, which can taint an otherwise legitimate claim.

Transaction-by-Transaction Review
Profits on individual transactions may vary or not be achieved, and fixed costs related to export sales may not be the same as domestic sales. Because of this, using our unique transaction-by-transaction review and analysis, we have increased the profitability related to companies’ export sales resulting in significant additional ETI deductions.

Redetermination Analysis
FortisTCS also can analyze your company’s past EIE and IC-DISC returns and prepare a redetermination if the study yields a higher tax benefit. Because the “window” for transaction grouping redeterminations will close shortly, the most likely redetermination studies would be associated with three items: (1) identifying additional qualifying sales, (2) implementing marginal costing to maximize benefit, and (3) determining the most appropriate expense allocation method.

Proactive Future Planning and Review of Systems & Methodologies
FortisTCS helped companies develop and implement procedures and methodologies to identify, document, and calculate future export tax benefits that are available under the IC-DISC regime, efficiently and effectively. These services focus first on making better use of a company's existing financial, accounting, and project-documentation systems to accomplish these goals, and second on introducing new systems or procedures.

Exam, Appeals and Litigation Support
We have supported hundreds of millions of dollars in R&D benefits. We can also help you manage and defend your ETI claims.

Your Business may be entitled to substantial ETI tax benefits.
Our proprietary methodology and expertise can identify and maximize these government export tax benefits and provide you an immediate source of cash refunds for prior years.

Contact your FortisTCS consultant today to learn how FortisTCS can help you capture and recover government sponsored Extraterritorial Income Exclusions for your business.

Request a NO-OBLIGATION, NO-COST Feasibility Study that will give you valuable information, specifically the amount of export tax benefits we can recover for your company as a cash refund for prior years and the potential of significant future tax savings for your export activities.

If you have not already connected with a FortisTCS consultant, please call Santosh Varughese, Managing Director, at (713) 830-7638 ext. 320, or via email at , or click here to contact us via the web.