In an increasingly competitive environment, Bermuda is still trying to garner its share of a market in Foreign Sales Corporations (FSCs) that local executives first sought ten years ago.

And a banker has advocated that `national' planning may be in order to make it happen, especially in the face of increasing tax-driven interest in the corporate vehicles.

Bank of Bermuda director of corporate relationships, corporate banking, Clement E.F. Talbot, who recently returned from a major FSC conference, said, "We haven't had the same success as other competing jurisdictions. We have seen some improvements in our incorporations as a result of Government reducing its fee structure, putting us on a level playing field with other jurisdictions seeking to incorporate more FSCs.

"Government changes also significantly improved the speed at which a FSC can be incorporated. It's down to 24 hours now, as opposed to a week or two weeks.'' Government and industry officials realised that the detailed regulatory oversight required by Bermuda in the past, not only worked as a significant regulatory impediment to attracting high quality business, but really was unnecessary, given the stringent scrutiny FSCs were already subjected to by the IRS.

"But,'' said Mr. Talbot, "this is a high volume, low margin business. Local service providers seek more lucrative offshore business. They often put less emphasis on this business.'' The deputy chairman of the Bermuda FSC Association, Mr. Talbot stated, "I believe Government and business need to collaborate to identify a jurisdiction-wide strategy, perhaps focusing in on a specific portion of this business. We may be able to target large American manufacturing exporting companies that may have an interest in the other financial services we provide to international clients.'' Progress toward reaching Bermuda's full potential has been slow. The fierce level of competition is one reason why.

The FSC/DISC Tax Association, Inc. (FDTA) for the first time in its history, had to abruptly cut off registration for last month's annual conference, held in Naples, Florida. More people than ever wanted to attend.

Total registration was stopped at 275, a record attendance of lawyers, accountants, bankers, tax consultants and senior representatives of management companies and US-based export companies.

Assistant Financial Secretary Ifor Hughes led a Bermuda delegation of less than ten people against strong contingents from competing offshore jurisdictions.

The Finance Minister would have been expected to attend, but newly-appointed Minister, Eugene Cox, had barely been anointed in his new cabinet role, when the conference began in Florida November 15.

The US Virgin Islands (USVI) sent their Lt. Governor; Jamaica, the Finance Minister; and Barbados, the Minister for International Business.

With 3,000 FSCs, Barbados has recently overtaken USVI as the preferred domicile. They incorporated 350 new ones this year alone. The USVI had 275 incorporations. Jamaica just began chasing this business last year, and this year attracted more than 150 new ones.

Trying to tie down exact numbers for Bermuda is difficult, as a result of Ministry of Finance classifications. That may be a local weakness when other jurisdictions can quote specific numbers.

Industry estimates obtained by The Royal Gazette for this article ranged from 300 to 600 Bermuda FSCs. No one wished to be quoted, because no one knew how accurate their estimate was.

Chairman of the Bermuda FSC Association, Mark Moffat, president of FSC manager, Quail Street Management Ltd. said, "A lot of people prefer Bermuda as a domicile, but Bermuda has to continually strive to promote itself against severe competition.

"The FSC industry in other offshore jurisdictions are heavily supported by their governments.'' Mr. Moffat and Mr. Talbot, the deputy chairman of the Bermuda FSC Association, conceded that although there was some Government interest in tracking the FSC numbers, it had not yet materialised.

Said Mr. Moffatt, "We want to be known globally as a jurisdiction that handles all manner of business, the big ticket and the small ticket business.

We want companies to learn how they can come to Bermuda for a variety of business services.'' A FSC (pronounced `fisc') is a company incorporated outside of the US, but in a US-approved jurisdiction, and given special tax treatment by the US Internal Revenue Service (IRS) because it promotes the export of US-manufactured equipment.

The equipment must be more than 50 percent made in the US and used predominantly outside the US. There should be no more than 25 shareholders, no preferred stock and a non-US office is required.

The benefits include a reduction of US federal taxes by the exporter of 15-20 percent on the net earnings of exports, a possible reduction in state taxes, the application of "safe haven'' pricing rules, a reduced risk of IRS audit on related party sales and limited IRS audits of small FSCs, if at all.

There could be as many as 8,000 FSCs in operation. Experts believe another 10,000 US companies could gain economic benefit from establishing FSCs.

The FSC was introduced as a new tax incentive to replace Domestic International Sales Corporations (DISCs) in 1984. Bermuda became an approved jurisdiction for the domicile of FSCs in 1988, as a result of the US/Bermuda Tax Treaty.

DISCs, which provided tax exemption for exports, headed toward obsolescence as a result of the disapproval by the General Agreement on Trade and Tariffs (GATT) treaty of US subsidies for domestic companies.

Five years ago, Codan Services, a unit of Bermuda law firm Conyers, Dill & Pearman, virtually cornered the aircraft leasing ownership market.

Codan had handled the majority of some 65 aircraft leasing transactions completed globally by mid-1993.