Member
Highlight:
Fifth Third Bank, Mark Klein, International
Banking Specialist & Assistant VP
www.53.com
Mark
Klein has been a board member of the Kentucky World Trade Center
since 2002 and has worked closely with the KWTC since 2000.
Mark Serves on the "Education" sub-committee and is
currently working to develop an on-line trade certification
program for KWTC members. Mark has worked in the banking industry
for 17 years and has focused on International Banking for the
past 6. Mark has been with Fifth Third Bank for 4 years and
currently manages their International Banking division in Louisville,
KY. Mark manages a portfolio of customers including some large,
multi-national companies, as well as, smaller companies with
less than 10 employees. No company is too big or too small.
Fifth Third Bank offers a complete line of services to meet
any company's international banking needs. These services include,
but are not limited to, foreign exchange, letters of credit,
export financing and international wires and drafts. Fifth Third's
corporate foreign exchange services can be accessed by either
telephone or Internet. Fifth Third has one of the largest trading
desks in the Midwest and its foreign exchange advisors can help
companies develop a strategy to protect them from the risks
associated with currency fluctuations. These constant changes
in the foreign exchange markets result in both risks and opportunities
when dealing internationally. For the international travelers,
Fifth Third Bank also offers foreign currency exchange services
at its main office and airport banking centers. Fifth Third
Bank is a previous winner of the Kentucky World Trade Center's
World Trade Success Award.
Mark graduated from the University of Louisville in 1988 with
a BSBA (Finance Major) and earned his MBA in 1997, also from
U of L. In addition to his board service with the KWTC, Mark
serves on the board of Junior Achievement and the Crane House.
Mark is a "born and raised" Louisville boy and resides
in the Highlands area of Louisville with his wife and 2 daughters.
If chasing 3 women around was not enough, Mark has 3 dogs, 3
cats and 2 birds. Mark loves to golf and is very involved with
his daughters' numerous sports activities.
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Sister
Cities of Louisville Welcomes New Executive Director, Elizabeth
Kuhn
www.sclou.org
Elizabeth
Kuhn was born and raised in Louisville, Kentucky. She completed
her undergraduate studies with a BA in Hispanic Studies from
Lewis and Clark College in Portland, OR. While at Lewis and
Clark she completed two semesters abroad in Cuenca, Ecuador
and Santiago, Dominican Republic. She traveled extensively before
and through her college years to Europe, South America, Asia,
Australia and New Zealand. After completing her BA she moved
back to Louisville, where she worked for 3 years as a caseworker
for Cuban immigrants with Kentucky Refugee Ministries. She returned
to school in 2004 to complete her Masters of Arts in Spanish
through Middlebury College in Middlebury Vermont. The program
was a full year with 2 semesters in Madrid, Spain. Upon her
return to Louisville, she began working for the National Center
for Family Literacy in the Hispanic Family Learning Institute.
In July of 2006 she accepted the position of Executive Director
at Sister Cities of Louisville and is excited to be working
for such a wonderful organization.
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Expeditors
Newsflash-Asia Edition: South Asian Free Trade Area Launched
in July
www.expeditors.com
Gulf
Times reported on 2 July 2006 that the South Asia Free Trade
Agreement
(SAFTA) took effect on July 1, 2006 among seven member countries
of South
Asia. The aim of the agreement is to enhance intra-regional
trade and
economic cooperation. Under the SAFTA roadmap, there is very
great potential
for intra-regional trade to climb from the current $5-6 billion
to $18 billion
in five years.
The seven nations who participated in SAFTA - formed an alliance
called South
Asian Association for Regional Cooperation (SAARC) - includes
Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Under
the new regime,
the most developed of these countries - Pakistan, India and
Sri Lanka - will
virtually eliminate tariffs with the other countries by 2013.
Countries that have been given the status of "least developed
countries" like
Nepal, Bhutan, Bangladesh and Maldives within the SAARC, will
reduce their
customs duties to 30 percent by the end of 2007, and ranging
from 0 percent to
5 percent by the end of 2015.
Any existing trade barriers would be reviewed from time to time
and steps
would be taken to remove them through bilateral and regional
negotiations.
The member-states have decided to notify non-tariff measures
(NTMs) and
para-tariff measures (PTMs) facing their exports to other SAARC
states by
October 1, 2006.
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Dean
Dorton & Ford's Exporters' Tax Update
By Leigh McKee & Jen Shah, Shareholders with Dean, Dorton
& Ford, PSC
www.ddfky.com
Summary
The
American Jobs Creation Act of 2004 provides for a phase out
of the extraterritorial income (ETI) exclusion with 80% of the
ETI exclusion available for 2005 and 60% of the exclusion available
for 2006. The ETI exclusion is replaced with a phased-in deduction
(QPD) for certain qualified domestic production activities available
for all qualified production, regardless of whether or not the
property is exported.
The
phase-out of the ETI is the result of a long and protracted
trade dispute between the US and the EU. It is replaced with
a deduction available for qualified US production (QPD). The
QPD is designed to put exporters on basically the same after-tax
financial footing as the ETI, but is available for qualified
domestic production - regardless of where the goods are sold.
Privately-held
U.S. exporters who continue to be eligible for the ETI during
the phase-out period need to determine whether the ETI regime
or an IC-DISC would provide better after-tax results. For privately-held
exporters, the IC-DISC results in a portion of the company's
export-related profits being taxed at 15% vs. up to 35% - a
permanent tax savings of 20%. This result is due to the current
taxation of dividends to individuals or fiduciaries at just
15% (currently enacted through 2008).
To
qualify for 2006 benefits, these exporters need to establish
their IC-DISCs and make the IC-DISC election as soon as possible.
Overview
In
part due to the worldwide scope of its taxation of U.S. citizens
and residents, the U.S. has long provided certain domestic producers
with tax incentives for exporting goods. The policy goal behind
these incentives has been to encourage production in the U.S.,
creating jobs, economic spin-off benefits, thus expanding the
domestic tax base, and generally putting U.S. exporters on equal
competitive footing with exporters from other countries which
do not tax the worldwide income of their citizens and residents.
These
incentives began nearly thirty-five years ago in 1971 with the
adoption of the DISC and continue through today with the adoption
of the qualified production deduction and with current discussions
in Congress of adopting a territorially based system of taxation.
To
the EU's credit, the US system of exclusions described below
have provided a prohibited export subsidy, but only because
they provide for a deferral or exclusion from taxable income
(a direct tax) based on exports. The EU countries provide for
a rebate from the VAT (value-added tax) for exports from the
EU.
Economically
the effects are similar. However, the GATT (General Agreement
on Trade and Tariffs) makes a rather arbitrary (from an economic
and pricing perspective in the modern global economy) distinction
between direct taxes (i.e., the US income tax) and indirect
taxes (i.e., the EU VAT tax) - reductions in direct taxes for
exports are a prohibited subsidy; reductions in indirect taxes
for exports are NOT a prohibited subsidy.
History
The
DISC - The Domestic International Sales Corporation was
created in 1971. This legislation permitted U.S. exporters to
exempt a portion of their profits by routing them through a
domestic subsidiary - the DISC. The exporter would assign export
income to the DISC and the DISC would generally be exempt from
tax on this export income. Income eligible for this exemption
was generally income from the export of property with 50% U.S.
content. The exclusion was the greatest of 4% of gross qualifying
sales receipts, 50% of qualifying profits, or an allocation
based on arm's length pricing. This regime provided for potentially
indefinite deferral of US taxation these profits - until they
were paid out as dividends to their owners.
A
complaint was lodged against the DISC regime in 1972 and the
DISC was ultimately and finally found to be a prohibited trade
subsidy under GATT in 1981.
In
1984, Congress added an interest charge to the tax deferral
provided by DISCs under which shareholders of the DISC are charged
interest on income tax that would have been paid on the income
retained by the DISC (i.e., not paid out as dividends to the
DISC shareholders). These interest-charge (IC-DISCs) do comply
with the 1981 GATT ruling and continue to be available to U.S.
exporters.
The
FSC - After the DISC was found to be illegal, Congress enacted
the foreign sales corporation (FSC) in 1984, replacing the domestic
subsidiary with a foreign subsidiary and again providing for
significant deferral of U.S. income tax on income from exports.
This
regime stood until the EU (joined by Canada and Japan among
others) lodged a complaint against it in 1997 with the World
Trade Organization (WTO). Commentators have suggested that his
delayed complaint may have been the result of a number of factors,
including but not limited to US victories with the WTO relating
to the EU's import regime relating to bananas and hormone-treated
beef and/or the expansion of the FSC regime to include US software
exporters.
In
any event, the WTO found the FSC regime to also be a prohibited
export subsidy in 1999. The U.S. appealed the ruling, but it
was upheld in 2000. The FSC was repealed by Congress in November
2000, with benefits phased-out and certain binding transactions
grandfathered in.
The
ETI - The same act that repealed the FSC regime enacted
the extraterritorial income (ETI) regime in 2000. In this regime,
a portion of qualifying foreign trade income was simply excluded
from US taxation vs. using a tax-exempt subsidiary to exclude
roughly the same income. Congress likened this regime to the
territorially based tax systems of many other GATT signatories.
The ETI regime provided for an exclusion from taxable income
of the greatest of the following amounts:
-
30% of foreign sale and leasing income - income attributable
to foreign sales and distribution activities such as solicitation
of sales, negotiation, advertising, and transportation and income
from renting qualified property outside the U.S.
-1.2% of foreign trading gross receipts - gross receipts from
activities performed outside the US with respect to the sale
or lease of qualifying property, or
- 15% of foreign trade income - foreign trade gross receipts
less COGS, direct foreign expenses relating to the sale or lease,
and a share of indirect costs - basically taxable income allocable
to qualifying exports.
Almost
immediately after enactment, the EU complained to the WTO that
the ETI regime constituted a prohibited export subsidy. The
WTO agreed with the EU in a 2001 ruling that was upheld on appeal
in 2002.
In
August 2002, the WTO granted the EU to impose $4 billion in
trade sanctions on US exports to the EU. The EU began imposing
sanctions in March 2004.
The
2004 Jobs Act, enacted in October 2004, repealed the ETI regime
on a phased-in schedule and provides for a qualified production
deduction in its stead.
The
repeal of the ETI regime is phased in and taxpayer may continue
to claim the benefit as follows:
-
80% for 2005
-60% for 2006
-100% for transactions subject to a binding contract in effect
on September 17, 2004.
The
EU ceased its sanctions effective January 2005, but may re-impose
them based on the phase-in and grandfather provisions of both
the FSC and the ETI regimes.
The
QPD
The
qualified production deduction is designed to put manufacturers
who were receiving the benefit of the ETI exclusion on roughly
the same after-tax financial footing. When fully phased in,
the QPD regime will have the effect of reducing the highest
tax rate on domestic production activities from 35% to 32%.
Significantly,
the QPD differs from prior incentives in that it provides for
a reduction in taxable income for production in the U.S. - regardless
of where the goods are ultimately sold. The EU has not opposed
this regime.
The
deduction is a percentage of taxable income from domestic production
activity. The applicable percentage is:
Tax
Years Percentage
2005 - 2006 3%
2007 - 2009 6%
2010 ff 9%
The
deduction is available to C corporations and to owners of S
corporations, partnerships, and sole proprietorships.
Businesses
may qualify for the deduction if they:
(1)
produce, grow, or extract,
(2) in whole or in significant part within the United States,
(3) any tangible personal property or computer software and
(4) derive income from leasing, licensing, or selling such property.
While
there is no list of qualifying production activities, the deduction's
scope is clearly broader than traditional manufacturing and
includes certain software development, mineral production, farming,
construction, and engineering and architectural services.
The
law includes these limiting provisions:
-The deduction is limited to 50% of the business's W-2 wages
for the calendar year that ends with or in the tax year for
which the deduction is claimed.
-If the qualified production activity income to which the deduction
would apply is more than taxable income, the deduction is limited
to the applicable percentage of taxable income.
-The deduction is not available for the sale of food and beverages
prepared at retail establishments.
The
deduction applies for alternative minimum tax as well as for
regular tax.
Additional
Planning for Closely-Held Exporters as a Result of the Repeal
of ETI
Businesses
that take the ETI exclusion are not permitted to simultaneously
use an IC-DISC to shelter additional income. There does not
appear to be any such restriction with regard to the QPD.
In
other words, U.S. businesses with significant U.S. production
and export activity can benefit from both the QPD and the IC-DISC.
This works best for closely-held exporters where business income
is taxed at federal rates of up to 35% but dividends from the
IC-DISC would only be taxed at 15% - a permanent tax savings
of at least 20%. The 15% federal tax rate on qualified dividends
is scheduled to end after 2008. Congress continues to discuss
extending or making permanent this provision and, at least in
the interim, significant tax savings are available.
For
more information on this strategy and an example of the potential
tax savings, see our 2005 International Tax Newsletter at
www.ddfky.com, or feel free to contact the authors at
lmckee@ddfky.com or jshah@ddfky.com.
Disclaimer: The comments provided herein are general in nature.
You should consult your tax advisor regarding your specific
situation before taking any action. No part of these comments
may be used to avoid tax penalties or to support the promotion
or marketing of any tax transactions.
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Lexmark
Introduces New Printer Lines
Lexmark
International today unveiled a new family of color laser printers
aimed to the company's business customers.
The
C770 family includes the C770n and C772n color laser printers,
as well as the X772e color multi-function printer, which offers
copy, scan and fax functions. The new products print up to 25
pages a minute in color and monochrome. Color lasers are a strong
growth segment in the printing industry. While the laser market
as a whole grew 22 percent in units sold in 2004-05, according
to market analyst IDC, color lasers grew 47 percent.
Lexmark has focused on the segment extensively in the past year.
The company introduced the C520 line of color lasers late last
year, offering speeds of up to 20 pages a minute in color and
monochrome. In May, the company also introduced the C500n, a
lower-priced model aimed at small and medium businesses.
The
C770n, introduced today, has an estimated street price of $999.
The C772n, which offers a higher-yield toner cartridge, room
for more paper and upgrade potential, has suggested price of
$1,499. The X772e has a suggested price of $4,499. The C770n
and C772n are available now, and the X772e will debut in late
September.
The
Herald-Leader
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Expeditors
Newsflash
U.S.-Bahrain
Free Trade Agreement Implemented
President Bush issued a proclamation on July 27, 2006 to implement
the United
States-Bahrain Free Trade Agreement (FTA), effective August
1, 2006.
"I am pleased that the President has issued a proclamation
to implement the
U.S.-Bahrain FTA as of August 1, 2006," U.S. Trade Representative
(USTR) Susan
C. Schwab stated in a press release on Thursday. "We have
worked closely and
intensively with the Government of Bahrain to ensure that the
obligations and
responsibilities of each party under the agreement have been
met."
"Soon U.S. farmers, manufacturers and service providers
will enjoy new
opportunities in this growing market," Schwab added, noting
that the Bush
Administration considers the agreement to be an important step
in advancing
the establishment of a Middle East Free Trade Area (MEFTA) by
2013.
Negotiations on the U.S.-Bahrain Free Trade Agreement began
in January 2004
and concluded in May of that year. Implementing legislation
for the agreement
passed the U.S. House of Representatives and the Senate in December
2005 and
was signed by President Bush in January 2006.
Additional information on the agreement can be accessed on the
USTR's "Bahrain
FTA" web page at:
http://www.ustr.gov/Trade_Agreements/Bilateral/Bahrain_FTA/Section_Index.html
Expeditors
Newsflash
Recent
Customs Quota Book Transmittals
The Bureau of Customs and Border Protection (Customs) publishes
directives
related to absolute and tariff-rate quotas for both textile
and non-textile
commodities on the agency's "Quota Book Transmittals (QBTs)"
web page.
Customs' "QBT" page provides notices of quota opening
and closing dates, lists
quota levels assigned for given products and quota periods and
provides
special instructions for the processing of quota entries and
on other
quota-related issues.
Recent QBT directives include the following:
- QBT-06-534 - 07/28/2006 - (Uruguay Round/GATT Quota on Cotton)
Cotton 52
ausn 6
- QBT-06-535 - 07/28/2006 - (Uruguay Round/GATT Quota on Cotton)
Cotton 52
ausn 7
- QBT-06-536 - 07/28/2006 - (Uruguay Round/GATT Quota on Cotton)
Cotton 52
ausn 8
- QBT-06-023 - 07/31/2006 - Bahrain FTA 2006 Textile TPL
- QBT-06-024 - 07/31/2006 - Bahrain FTA Ensembles
- QBT-06-537 - 07/31/2006 - Bahrain FTA 2006 Agricultural TRQs
Customs' "Quota Book Transmittals (QBTs)" web page
can be accessed on-line at:
http://www.cbp.gov/xp/cgov/import/textiles_and_quotas/qbts/.
Customs' pamphlet "Import Quotas" can be accessed
on the agency's Trade
Publications page at:
http://www.customs.ustreas.gov/xp/cgov/toolbox/publications/trade/.
Expeditors Newsflash, (206) 674-3400, expeditors.newsflash@expeditors.com
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