Increasing IC-DISC Revenue– Maximize the Export Tax Incentive

1. Increasing IC-DISC Revenue– Maximize the Export Tax Incentive Jonathan Lysenko May 20, 2009

2. The IC-DISC Tax Benefit Benefit:  Qualified US exporters get a permanent 20% tax savings • A US exporter sets-up a paper company; a conduit for export sales • US exporter pays a commission to the IC-DISC -- deduction at 35% • IC-DISC pays a dividend to its shareholders – taxed at 15%   Good Candidate:   • Exporter of US- manufactured products with > 50% US content • Engineers and architects with construction projects outside the US • US taxpayer should be profitable (i.e., tax-paying) in the US • S-Corps, LLCs, and privately-held C-Corps

3. Safe Harbor Commission IC-DISCIRC Sec. 991 - 997 Overview: • The “safe harbor” commission amount is treated as income to the IC-DISC and is tax deferred up to $10,000,000 of FTGR and taxed as a dividend when distributed to US parent or affiliate. • The “safe harbor” commission is calculated at 50% of combined taxable income (CTI), 4% of foreign trading gross receipts (FTGR), or marginal costing whichever method yields the greatest benefit (IRC Sec. 994(a)) Client Impact: • Entirely transparent no change to client’s current business operations Business Impact: • US Parent must set up paper company with separate books and bank accounts CTI Transfer amount up to 50% or 4% of FTGR

4. Increasethe IC-DISC Benefit Maximize Export Gross Receipts: • Related & Subsidiary Services • Export Promotion Expenses Select Best Pricing Method: • Transaction by Transaction Pricing • Marginal Costing Add Functions & Risks: • Buy / Sell IC-DISC • Factoring Export Receivables • Foreign International Sales Corporation

5. Maximize Export Gross Receipts Related & Subsidiary Services:  • FTGR includes R&S Services within the Controlled Group • Subsidiary if less than 50% of the total of Sales and Service Income • Including but not limited to - Warranty, Repair, Maintenance, Transportation • Does not include Financing and Interest

6. Maximize Export Gross Receipts Export Promotion Expenses:  • Export Promotion Expenses paid by IC-DISC are reimbursed by US Exporter at cost plus 10% • Export Promotion Expenses are expenses incurred by IC-DISC to advance export sales, including • Advertising • General and administrative expenses • Freight and shipping • Packaging, designing and labeling, etc.

7. Select Best Pricing Method “T by T Approach”:  • Commonly a 50% Increase in IC-DISC Benefit • Determine Benefit Under Three Possible Methods: • 4% Gross Receipts Method • 50% Full Cost CTI Method • 50% Marginal Costing CTI Method Good Candidate:  • Profit Variability (Product, Customers, Time of Yr., etc.) • Available Sales & COGS by Transaction

8. Select Best Pricing Method Maximization Tips:  • 50% FC CTI if net profit is > 8% • 4% Gross Receipts if net profit is < 8% • Use Marginal Costing if Overall Profit Percentage is > FC CTI % and > 8% • Transactional is the most beneficial overall method • In addition – selective grouping is needed for maximization

9. Select Best Pricing Method Example

10. Buy/Sell IC-DISCIRC Sec. 994 Overview: • Rather than a commission, the IC-DISC buys and sells qualified export inventory • Essential to meet the 95% qualified export assets test Client Impact: • Customer sees the IC-DISC as issuer of the invoice Business Impact : • IC-DISC performs Back office invoicing • Requires a Section 482 Transfer Pricing Study Average CTI transfer amount 66% - 70%

11. Export Invoice FactoringRev. Rul. 75-430, Rev. Rul. 79-362 Overview: • The IC-DISC adds a new source of revenue – factoring income • Factoring income is derived from purchasing the invoices associated with commission income • The invoices are discounted at a 4%-5% rate – the discount is additional IC-DISC income Client Impact: • Customer sees the IC-DISC handling both invoicing and collections Business Impact: • IC-DISC performs Back office invoicing • IC-DISC takes on Account Receivable services (assumes credit risk) • Requires a IRC Sec. 482 Transfer Pricing study Average CTI transfer amount – 70% to 75%

12. Foreign International Sales Corporation “FISC” IRC Sec. 993(e)(1) Overview: • IC-DISC can own 100% of a Foreign International Sales Corporation (FISC) which has to be located in a jurisdiction outside of the 50 United States and Puerto Rico (i.e. U.S. Virgin Islands, or Bermuda) • FISC buys the inventory from the US Exporter at a discount and than sells it to the foreign customers – the FISC earns a standard distributor return • FISC pays a dividend of profits to the IC-DISC Client Impact: • FISC is more visible to customers than the IC-DISC; customers deal directly with the FISC Business Impact: • FISC performs back-office invoicing and collections • FISC is a full-fledged foreign trading company with inventory, credit, and market risk • Requires a more extensive IRC Sec. 482 Transfer Pricing Study Average CTI transfer amount – 75% to 85%

13. Thank You Jonathan Lysenko (212) 682-1600 ext 6359 lysenko@amper.com “The material contained in this presentation is for general information and should not be acted upon without prior professional consultation.”