Repeal of Extraterritorial Income Tax Break Signed Into Law--
European Union Set To Lift Sanctions on U.S. Imports
Posted October 27, 2004
On October 22, 2004, the President signed into law H.R. 4520, the American Jobs Creation Act of 2004 (Public Law 108-357) that includes the long awaited repeal of the Extraterritorial Income (ETI) Credit. The ETI had been ruled an illegal export subsidy by the World Trade Organization in a complaint brought by the European Union (E.U.). Over the past year, the E.U. has levied retaliatory trade sanctions on over 1600 U.S.products in response to delays in repealing the ETI. The tariffs will reach 14% by the year's end. With the signing of H.R. 4520 by the President, the E.U. has indicated that it will act to lift the sanctions by January 1, 2005.
Briefly, the ETI was a tax credit made available to U.S.exporters to counteract the imposition of double taxation and to ensure U.S.exports remained competitive in the global market. This tax credit was beneficial to many U.S.defense firms. The ETI was created to replace the Foreign Sales Corporation (FSC) which was also ruled an illegal export subsidy by the World Trade Organization. The impetus for creating a tax benefit for U.S. exporters stems from the differences between the U.S. and European taxation systems and a previous agreement under the General Agreement on Trade & Tariffs (GATT) to make Value Added Taxes (VAT's)--commonly used in Europe--adjustable at the boarders (allowing European exports to only be taxed in their final country of sale).
Other useful links:
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EU Office of the Trade Commissioner Statement
For additional information, please contact:
Mr. Ben Stone
Director, International Trade Policy & Programs
NDIA
E-mail: bstone@ndia.org
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