Legal Definitions - DISC

DISC stands for Domestic International Sales Corporation.

A Domestic International Sales Corporation (DISC) is a special type of U.S. corporation that is largely exempt from federal income tax on its export profits. Instead of the corporation paying tax, its shareholders are taxed on the DISC's income, often at preferential qualified dividend rates. The primary purpose of a DISC is to provide a tax incentive for U.S. companies to increase their exports of goods and certain related services. A DISC typically functions as a commission agent for a related U.S. exporter, earning commissions on the export sales facilitated by the parent company.

• Example 1: Industrial Machinery Manufacturer

  A U.S. company, Precision Robotics Inc., manufactures advanced robotic arms for assembly lines. They frequently export these sophisticated machines to factories in Germany and Japan. To take advantage of tax incentives, Precision Robotics Inc. establishes a subsidiary called Global Export Solutions DISC. Global Export Solutions DISC acts as a commission agent for all of Precision Robotics Inc.'s international sales. Precision Robotics Inc. pays Global Export Solutions DISC a commission on every robotic arm sold to overseas customers. This commission income is not taxed at the corporate level for Global Export Solutions DISC. Instead, the shareholders of Global Export Solutions DISC (who are the owners of Precision Robotics Inc.) are taxed on this income, often at a lower dividend tax rate, effectively reducing the overall tax burden on their export profits and making their products more competitive internationally.

• Example 2: Specialty Food Producer

  Harvest Bounty Farms, a U.S. agricultural cooperative, specializes in growing and processing organic quinoa and ancient grains. They have a growing market for their products in Europe and Australia. To optimize their tax strategy for these international sales, Harvest Bounty Farms forms Agri-Trade Incentives DISC. Agri-Trade Incentives DISC serves as the commission agent for all of Harvest Bounty Farms' export transactions. When Harvest Bounty Farms sells a shipment of organic quinoa to a distributor in France, Agri-Trade Incentives DISC earns a commission on that sale. This commission income is exempt from U.S. federal corporate income tax for Agri-Trade Incentives DISC. The cooperative's members, as shareholders of the DISC, then report and pay taxes on this income at the favorable qualified dividend rates, providing a significant tax benefit for their export-oriented agricultural business.

• Example 3: High-Tech Component Supplier

  Circuit Innovations LLC, a U.S. company, designs and manufactures specialized microchips and electronic components used in medical devices. They regularly export these components to device manufacturers in Switzerland and South Korea. To benefit from export tax incentives, Circuit Innovations LLC creates Tech Export Advantage DISC. Tech Export Advantage DISC functions as the commission agent for all of Circuit Innovations LLC's sales to international clients. Circuit Innovations LLC pays Tech Export Advantage DISC a commission based on the value of the components exported. The income earned by Tech Export Advantage DISC from these commissions is not subject to U.S. federal corporate income tax. Instead, the owners of Circuit Innovations LLC, as shareholders of Tech Export Advantage DISC, are taxed on this income at the typically lower qualified dividend rates, thereby reducing the overall tax liability on their international sales of high-tech components.