Domestic International Sales Corporation – Definition

Cite this article as:"Domestic International Sales Corporation – Definition," in The Business Professor, updated November 23, 2018, last accessed October 1, 2020,


Domestic International Sales Corporation Definition

The Domestic International Sales Corporations (DISC) is a tax incentive for the U.S. businesses involved in export activities. A U.S. company with qualifying income from exports of U.S. made goods, or its shareholders, form a corporation and elect DISC status for it. After the formation of the DISC, the exporters sign a contract with the DISC agreeing to pay a commission to the DISC on all the export sales.

The money received as the commission is generally used for purchasing export receivables from the exporters or to provide them loans. The shareholders of DISC enjoy tax reduction on the dividends and undistributed income.  The DISC has no employees or physical assets. Basically, it is a shell entity.

A Little More on What is a Domestic International Sales Corporation

Controversy Surrounding the Domestic International Sales Corporations
The European Community claimed the DISC was violating the terms of Generally Accepted Trade Tarrifs. The United State responded by challenging the European tax regulations concerning export-based income. Both the DISC and European tax regulations were found to be incompatible to GATT by the panel in 1976. The dispute was finally settled by the Tokyo Round Code on Subsidies and Countervailing Duties. In1981, the GATT Council adopted the panel reports with the recommendation of applying the settlement terms. However, later in 1999, a WTO panel declared that the 1981 decision did not establish a legal instrument complying with GATT-1994.

In 1984, Foreign Sales Corporations were adopted as an alternative to DISCs. In the face of a mounting international pressure, the U.S. authority also decided to amend the DISC-related rules. According to the new rule, the DISC and its shareholders can enjoy the subsidized tax rate only when the shareholders pay interests on the deferred tax.

References for Domestic International Sales Corporations

Academic Research on Domestic International Sales Corporation

Determinants of the choice between partial and comprehensive income tax allocation: the case of the domestic international sales corporation, Gupta, S. (1995). Accounting Review, 489-511. The author uses a sample of 320 firms with domestic international sales corporations (DISCs) to examine potential explanations for a manager’s choice between comprehensive and partial income tax allocation. The findings demonstrate the manager’s efforts to balance personal and corporate goals, but they also find that the firms method of choice can be influenced by the auditor’s stated positions on tax issues.

Use of a Domestic International Sales Corporation to Reduce Federal Income Tax on Export Earnings, Rendell, R. S. (1973). San Diego L. Rev., 11, 138.

The Domestic International Sales Corporation and Its Effects, Mutti, J., & Grubert, H. (1984). In The structure and evolution of recent US trade policy (pp. 279-320). University of Chicago Press. The authors of this article develop a static, general equilibrium model of two countries – the U.S. and a foreign trading partner. The domestic international sales corporation (DISC) is entered into this model to illustrate the effects that it can have on a firm’s tax liabilities, the price of exports, and the cost and allocation of capital.

International versus domestic entrepreneurship: new venture strategic behavior and industry structure, McDougall, P. P. (1989). Journal of Business Venturing, 4(6), 387-400. This study explores the idea that there are significant differences between new venture firms competing domestically and those operating in an international arena. Strategies regarding market entry, customer retention, expansion, and the nature of their competitors are examined.

The Domestic International Sales Corporation in Perspective and Operation, Hyde, M. R., & Murphy, M. E. (1972). The Business Lawyer, 43-61. This article was written to introduce the reader to the concepts and terminology regarding the domestic international sales corporation (DISC).  The author reviews the historical background that was responsible for the creation of the DISC. The purpose of the DISC is to act as a tax shelter that encourages the export of U.S. goods and services, and this article also examines the non-tax problems that assist in the valuation of the DISC.

An examination of barriers to exporting encountered by small manufacturing companies, Rabino, S. (1980). Management International Review, 67-73. This study looks at small exporting firms in high-tech industries, as the prevailing feeling is that non-U.S. governments are doing much more to support and encourage their exporting manufacturers in similar industries. The functional, competitive, and regulatory demands of high-tech exports in the U.S. are examined.

The export decision process: An empirical inquiry, Simpson, C. L., & Kujawa, D. (1974). Journal of International Business Studies, 5(1), 107-117. This study uses profiles of decision-makers in both exporting and non-exporting firms to show how regulation, export stimulus, and various import variations such as cost, profit, and risk perception influence the firm’s export decisions. The authors also offer an analysis on public policies designed to promote exports.

A comparison of international and domestic new ventures, McDougall, P. P., Oviatt, B. M., & Shrader, R. C. (2003). Journal of international entrepreneurship, 1(1), 59-82. A sample set of 214 IPOs are used to examine the differences between international new ventures (INVs) and domestic new ventures (DNVs). The findings highlight the differences in management experience, distribution network, and industry selection. Strategies regarding competition, innovation, quality, and customer service are also discussed.

Toward a theory of international new ventures, Oviatt, B. M., & McDougall, P. P. (1994). Journal of international business studies, 25(1), 45-64. Organizations that are international from their inception are a relatively new phenomenon, and the authors present a framework for the explanation of these innovative firms. The necessary elements for these firms are explained and discussed.

International portfolio choice and corporation finance: A synthesis, Adler, M., & Dumas, B. (1983). The Journal of Finance, 38(3), 925-984. The structure of financial theory is essentially a larger version of domestic financial theory, with notable differences that are examined by the authors. Variations in the definition of a nation-state are often the greatest difference in the most common theories, but portfolio theory is also considered.

Legal Aspects of the Domestic International Sales Corporation (Disc)-Qualification and Compliance, Fromson, D. (1973). NY St. BJ, 45, 85. This article offers a legal overview of the domestic international sales corporation (DISC). The author looks at the basic purpose and definition of a DISC, how a firm chooses to be a DISC, and the benefits of DISC status. There is also a discussion of special rules at the end.

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