6-9-82 9871
[1!9518]
By Robert Feinschreiber, A ttome)' ( New York), Partner: Feinschreiber& Associates, New York, N. Y. and George Carey, Professor of Law, North Carolina Central University School of Law, Durham, North Carolina
Producer's loans are a special category of loans made by a DISC to a U.S. manu- facturer-the DISC's parent, another affiliate, or an unrelated person. Such a loan is a qualified export asset, and can help satisfy the requirement that at least 95 percent of the DISC's assets be qualified export assets.l In addition, interest on a producer's loan is a qualified export receipt, and can help satisfy the requirement that at least 95 per- cent of the DISC's receipts be qualified export receipts}
The overriding policy for the producer's loan provisions is to encourage U.S. invest- ment in plant and equipment and to discourage foreign investment. This policy is re- flected in the highly complex limitations and requirements (on the borrower, the lender, and the loan itself) that have to be met before a loan qualifies as a producer's loan. This analysis will discuss those limitations and requirements-and the feasibility of making producer's loans-under the following main headings:
I. Requirements for the loan 1!9518.1
2. The nature of the borrower 1!9518.2
3. Export-relatedassets 1!9518.3
4. The increased-investment requirement. 1!9518.4
5. Controlled group aspects 1!9518.5
6. Producer's loan interest ~ 1!9518.6
7. SpecialrulesforfIlmmakers 1!9518.7
8. Foreign investment attributable to producer's loans. 1!9518.8
9. Advantages and disadvantages. 1!9518.9
[1!9518.1]
REQUIREMENTS FOR THE
LOAN
A loan must satisfy four specific requirements to be a producer's
loan:
1. It must be evidenced by a note or other evidence of debt;
2. It must be specifically designated as a producer's loan;
3. It must have a stated maturity of no more than five years; and
4. The total producer's loans may not exceed accumulated DISC income.
( 1) Evidence of Indebtedness.
The Code doesn't specifically
require a formal note or even a written obligation. On the other
hand, the Regulations indirectly require that the producer's loan
be evidenced by a written instrument -a nd may be invalid to that
extent-because they prescribe standard language. to be inscribed
on the instrument. Presumably, other evidence of debt should be
sufficient to meet the statutory requirement. Other acceptable
forms of evidence should include corporate minutes, accounting
records, and oral testimony.
Footnote references start at the end of this analysis-
@ 1982 P-H Inc.-U.S. Taxation of International Operations 1!9518.1
