The European Union has rejected a U.S. plan to create tax breaks for U.S. exports, stating that the plan violates World Trade Organization rules. The WTO has threatened sanctions and tariffs if the U.S. doesn’t come up with a viable alternative to the offshore tax havens now available to U.S. companies.

Presently, under the auspices of the Foreign Sales Corporation program, many U.S. corporations, from small businesses to the likes of Microsoft, Boeing, General Motors, and United Technologies, funnel exports through offshore tax havens such as Bahamas and the Virgin Islands in order to save 15% on income taxes. This program was originally developed to level the playing field with European exporters who are given a rebate in their own country when selling overseas.

A new U.S. plan, which would provide tax breaks to companies exporting goods, has been described by the EU as improperly subsidizing the companies. The U.S. feels the plan is compliant with World Trade Organization specifications, and plans to press ahead, hoping that Congress will ratify the the plan by the October 1st deadline.

The proposed plan would cost U.S. taxpayers some $300 million annually as corporate costs are passed on to consumers. The U.S. has until October 1 to arrive at a plan that is acceptable to the EU and that meets the World Trade Organization guidelines or else face possible sanctions on many exported goods.