Federal Acquisition Regulation: Taxes-Foreign Contracts in Afghanistan, 49502-49505 [2019-20046]
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49502
Federal Register / Vol. 84, No. 183 / Friday, September 20, 2019 / Proposed Rules
(e) If the Offeror represents it is a foreign
person in paragraph (d)(1) of this provision,
then—
(1) The clause at FAR 52.229–XX, Tax on
Certain Foreign Procurements, will be
included in any resulting contract; and
(2) The Offeror shall submit with its offer
the IRS Form W–14. If the IRS Form W–14
is not submitted with the offer, exemptions
will not be applied to any resulting contract
and the Government will withhold a full 2
percent of each payment.
(f) If the Offeror selects ‘‘is’’ in paragraph
(d)(1) and ‘‘partial or no exemption’’ in
paragraph (d)(2) of this provision, the Offeror
will be subject to withholding in accordance
with the clause at FAR 52.229–XX, Tax on
Certain Foreign Procurements, in any
resulting contract.
(g) A taxpayer may, for a fee, seek advice
from the Internal Revenue Service (IRS) as to
the proper tax treatment of a transaction.
This is called a private letter ruling. Also, the
IRS may publish a revenue ruling, which is
an official interpretation by the IRS of the
Internal Revenue Code, related statutes, tax
treaties, and regulations. A revenue ruling is
the conclusion of the IRS on how the law is
applied to a specific set of facts. For
questions relating to the interpretation of the
IRS regulations go to https://www.irs.gov/
help/tax-law-questions.
(End of provision)
52.229–XX Tax on Certain Foreign
Procurements.
As prescribed in 29.402–3(b), insert
the following clause:
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Tax on Certain Foreign Procurements
([DATE])
(a) Definitions.
Foreign person means any person other
than a United States person.
United States person, as defined in 26
U.S.C. 7701(a)(30), means—
(1) A citizen or resident of the United
States,
(2) A domestic partnership,
(3) A domestic corporation,
(4) Any estate (other than a foreign estate,
within the meaning of paragraph (31)), and
(5) Any trust if—
(i) A court within the United States is able
to exercise primary supervision over the
administration of the trust; and
(ii) One or more United States persons
have the authority to control all substantial
decisions of the trust.
(b) This clause applies to foreign persons.
It implements 26 U.S.C. 5000C, Imposition of
tax on certain foreign procurement, and its
implementing regulations at 26 CFR
1.5000C–1 through 1.5000C–7.
(c)(1) If the Contractor is a foreign person
and has only a partial or no exemption to the
withholding, the Contractor shall include the
Department of the Treasury Internal Revenue
Service Form W–14, Certificate of Foreign
Contracting Party Receiving Federal
Procurement Payments, with each voucher or
invoice submitted under this contract
throughout the period in which this status is
applicable. The excise tax withholding is
applied at the payment level, not at the
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contract level. The Contractor should revise
each IRS Form W–14 submission to reflect
the exemption (if any) that applies to that
particular invoice, such as a different
exemption applying. In the absence of a
completed IRS Form W–14 accompanying a
payment request, the default withholding
percentage is 2 percent for the section 5000C
withholding for that payment request.
Information about IRS Form W–14 and its
separate instructions is available via the
internet at www.irs.gov/w14.
(2) If the Contractor is a foreign person and
has indicated in its offer in the provision
52.229–WW, Tax on Certain Foreign
Procurements—Notice and Representation,
that it is fully exempt from the withholding,
and certified the full exemption on the IRS
Form W–14, and if that full exemption no
longer applies due to a change in
circumstances during the performance of the
contract that causes the Contractor to become
subject to the withholding for the 2 percent
excise tax then the Contractor shall—
(i) Notify the Contracting Officer within 30
days of a change in circumstances that causes
the Contractor to be subject to the excise tax
withholding under 26 U.S.C. 5000C,
Imposition of tax on certain foreign
procurement; and
(ii) Comply with paragraph (c)(1) of this
clause.
(d) The Government will withhold a full 2
percent of each payment unless the
Contractor claims an exemption. If the
Contractor enters a ratio in Line 12 of the IRS
Form W–14, the result of Line 11 divided by
Line 10, the Government will withhold from
each payment an amount equal to 2 percent
multiplied by the contract ratio. If the
Contractor marks box 9 of the IRS Form W–
14 (rather than completes Lines 10 through
12), the Contractor must identify and enter
the specific exempt and nonexempt amounts
in Line 15 of the IRS Form W–14; the
Government will then withhold 2 percent
only from the nonexempt amount. See the
IRS Form W–14 and its instructions.
(e) Exemptions from the withholding under
this clause are described at 26 CFR 1.5000C–
1(d)(5) through (d)(7). Any exemption
claimed and self-certified on the IRS Form
W–14 is subject to audit by the IRS. Any
disputes regarding the imposition and
collection of the section 5000C tax are
adjudicated by the IRS as the section 5000C
tax is a tax matter, not a contract issue.
(f) Taxes imposed under 26 U.S.C. 5000C
may not be—
(1) Included in the contract price; nor
(2) Reimbursed.
(g) A taxpayer may, for a fee, seek advice
from the Internal Revenue Service (IRS) as to
the proper tax treatment of a transaction.
This is called a private letter ruling. Also, the
IRS may publish a revenue ruling, which is
an official interpretation by the IRS of the
Internal Revenue Code, related statutes, tax
treaties, and regulations. A revenue ruling is
the conclusion of the IRS on how the law is
applied to a specific set of facts. For
questions relating to the interpretation of the
IRS regulations go to https://www.irs.gov/
help/tax-law-questions.
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(End of clause)
[FR Doc. 2019–20227 Filed 9–19–19; 8:45 am]
BILLING CODE 6820–EP–P
DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
48 CFR Parts 12, 29, and 52
[FAR Case 2018–023; Docket No. FAR–
2018–0023, Sequence No. 1]
RIN 9000–AN68
Federal Acquisition Regulation:
Taxes—Foreign Contracts in
Afghanistan
Department of Defense (DoD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Proposed rule.
AGENCY:
DoD, GSA, and NASA are
proposing to amend the Federal
Acquisition Regulation (FAR) to add
two new clauses that notify contractors
of requirements relating to Afghanistan
taxes or similar charges when contracts
are being performed in Afghanistan.
DATES: Interested parties should submit
written comments to the Regulatory
Secretariat Division at one of the
addresses shown below on or before
November 19, 2019 to be considered in
the formation of the final rule.
ADDRESSES: Submit comments in
response to FAR Case 2018–023 using
any of the following methods:
• Regulations.gov: https://
www.regulations.gov. Submit comments
via the Federal eRulemaking portal by
entering ‘‘FAR Case 2018–023’’ under
the heading ‘‘Enter Keyword or ID’’ and
selecting ‘‘Search’’. Select the link
‘‘Submit a Comment’’ that corresponds
with ‘‘FAR Case 2018–023’’. Follow the
instructions provided at the ‘‘Submit a
Comment’’ screen. Please include your
name, company name (if any), and
‘‘FAR Case 2018–023’’ on your attached
document.
• Mail: General Services
Administration, Regulatory Secretariat
(MVCB), ATTN: Lois Mandell, 1800 F
Street NW, 2nd Floor, Washington, DC
20405.
Instructions: Please submit comments
only and cite ‘‘FAR Case 2018–023’’ in
all correspondence related to this case.
All comments received will be posted
without change to https://
www.regulations.gov, including any
SUMMARY:
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personal and/or business confidential
information provided.
FOR FURTHER INFORMATION CONTACT: Mr.
Kevin Funk, Procurement Analyst, at
202–357–5805 or kevin.funk@gsa.gov
for clarification of content. For
information pertaining to status or
publication schedules, contact the
Regulatory Secretariat at 202–501–4755.
Please cite ‘‘FAR Case 2018–023.’’
SUPPLEMENTARY INFORMATION:
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I. Background
Agreements established with the
Islamic Republic of Afghanistan exempt
the United States Government and the
North Atlantic Treaty Organization
(NATO) Forces, and their contractors
from liability for Afghanistan taxes and
similar charges (e.g. customs, duties,
fees).
The Security and Defense Cooperation
Agreement (the Agreement) between the
Islamic Republic of Afghanistan and the
United States of America was signed on
September 30, 2014, and entered into
force on January 1, 2015. The
Agreement exempts the United States
Government, and its contractors and
subcontractors (other than those that are
Afghan legal entities or residents), from
paying any tax or similar charge
assessed on activities associated with
contracts performed within Afghanistan.
The Agreement also exempts the
acquisition, importation, exportation,
reexportation, transportation, and use of
supplies and services in Afghanistan, by
or on behalf of the United States
Government, from any taxes, customs,
duties, fees, or similar charges in
Afghanistan.
The Status of Forces Agreement
(SOFA) between NATO and the Islamic
Republic of Afghanistan was issued on
September 30, 2014, and entered into
force on January 1, 2015. The SOFA
exempts NATO Forces and its
contractors and subcontractors (other
than those that are Afghan legal entities
or residents) from paying any tax or
similar charge assessed within
Afghanistan. The SOFA also exempts
the acquisition, importation,
exportation, reexportation,
transportation and use of supplies and
services in Afghanistan from all Afghan
taxes, customs, duties, fees, or similar
charges.
DoD, GSA, and NASA are proposing
to add two new FAR clauses to notify
contractors of the exemptions under the
Agreement and the SOFA.
This FAR rule was opened at the
request of DoD’s Regulatory Reform
Task Force (RRTF). The RRTF was
established under Executive Order
13777, titled ‘‘Enforcing the Regulatory
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Reform Agenda,’’ which requires
agencies to evaluate existing regulations
on whether they should be repealed,
replaced, modified, or retained. The
focus of the DoD RRTF was to reduce
regulatory burden on the public. The
DoD RRTF recommended this case be
opened, since these policies apply to
multiple federal agencies identified in
this rule as a ‘‘covered agency.’’ Some
covered agencies have developed
agency-level clauses. Therefore, the
recommendation was made to elevate
and include this policy in the FAR. This
measure eliminates the need for agencyunique supplemental regulations and
ensures unified guidance among the
affected agencies, consistent with the
purpose of the FAR system.
Afghanistan; and (2) the acquisition,
importation, exportation, transportation,
and use of supplies and services in
Afghanistan, by or on behalf of the U.S.
Government, from all Afghan taxes,
customs, duties, or similar charges.
Since both agreements are currently
effective for contractors operating in
Afghanistan, this rule is only notifying
contractors about the exemptions from
liability for Afghanistan taxes, customs,
duties, fees or similar charges. The rule
is not adding any new requirements for
contractors; however, it is providing
unified guidance for contractors
performing in Afghanistan. DoD issued
a final rule on December 30, 2015, at 80
FR 81467 that added similar clauses for
applicable DoD contracts.
II. Discussion and Analysis
This proposed rule would notify
contractors about the tax exemptions
described in Section I of this preamble
by adding the following two clauses:
• FAR 52.229–XX, Taxes-Foreign
Contracts in Afghanistan, is proposed
for inclusion in all solicitations and
contracts, including solicitations and
contracts using FAR part 12 procedures
for the acquisition of commercial items,
with performance in Afghanistan,
unless the clause at 52.229–YY is used.
The Agreement incorporated by this
clause exempts: (1) The United States
Government, and its contractors and
subcontractors, (other than those that
are Afghan legal entities or residents),
from paying any tax or similar charge
assessed on activities associated with
contracts within Afghanistan; and (2)
the acquisition, importation,
exportation, reexportation,
transportation, and use of supplies and
services in Afghanistan, by or on behalf
of the United States Government, from
any taxes, customs, duties, or similar
charges in Afghanistan. Contractors are
required to exclude any Afghan taxes,
customs, duties, or similar charges from
contract prices, other than those charged
to Afghan legal entities or residents.
• FAR 52.229–YY, Taxes—Foreign
Contracts in Afghanistan (North Atlantic
Treaty Organization Status of Forces
Agreement) is proposed for inclusion,
instead of clause 52.229–XX, TaxesForeign Contracts in Afghanistan, in all
solicitations and contracts, including
solicitations and contracts using FAR
part 12 procedures for the acquisition of
commercial items, with performance in
Afghanistan awarded on behalf of
NATO. The SOFA incorporated by this
clause exempts: (1) NATO Forces and
its contractors and subcontractors (other
than those that are Afghan legal entities
or residents) from paying any tax or
similar charge assessed within
III. Applicability to Contracts at or
Below the Simplified Acquisition
Threshold (SAT) and for Commercial
Items, Including Commercially
Available Off-the-Shelf (COTS) Items
This rule creates two new clauses: (1)
FAR 52.229–XX, Taxes—Foreign
Contracts in Afghanistan, and (2) FAR
52.229–YY, Taxes—Foreign Contracts in
Afghanistan (North Atlantic Treaty
Organization Status of Forces
Agreement). The objective of the rule is
to notify U.S. Government contractors
that contracts performed in Afghanistan
are exempt from payment liability for
Afghan taxes, customs, duties, fees or
similar charges pursuant to the
Agreement and SOFA.
DoD, GSA, and NASA are applying
these two clauses to applicable
solicitations and contracts below the
SAT and to the acquisition of
commercial items, including COTS
items, as defined at FAR 2.101. This
rule clarifies the application of
requirements relating to treatment of
Afghan taxes, customs, duties, fees or
similar charges for contracts performed
in Afghanistan. Not applying these
clauses to contracts below the SAT and
for the acquisition of commercial items,
including COTS items, would exclude
contracts intended to be covered by this
rule and undermine the overarching
purpose of the rule for providing
guidance to all applicable contractors.
Consequently, DoD, GSA, and NASA are
applying the rule to applicable contracts
below the SAT and for the acquisition
of applicable commercial items,
including COTS items.
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IV. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and
13563 direct agencies to assess all costs
and benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
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Federal Register / Vol. 84, No. 183 / Friday, September 20, 2019 / Proposed Rules
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). E.O. 13563 emphasizes the
importance of quantifying both costs
and benefits, of reducing costs, of
harmonizing rules, and of promoting
flexibility. This rule is a not significant
regulatory action and, therefore, is not
subject to review under section 6(b) of
E.O. 12866, Regulatory Planning and
Review, dated September 30, 1993. This
rule is not a major rule under 5 U.S.C.
804.
V. Executive Order 13771
This rule is not subject to E.O. 13771,
because this rule is not a significant
regulatory action under E.O. 12866.
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VI. Regulatory Flexibility Act
DoD, GSA, and NASA do not expect
this rule to have a significant economic
impact on a substantial number of small
entities within the meaning of the
Regulatory Flexibility Act, 5 U.S.C. 601,
et seq., because this rule only clarifies
contractor exemptions from Afghan
taxes, customs, duties, fees or similar
charges on contracts performed in
Afghanistan. However, an Initial
Regulatory Flexibility Analysis has been
performed, and is summarized as
follows:
DoD, GSA, and NASA are proposing to
amend the Federal Acquisition Regulation
(FAR) to add two new clauses that notify
contractors of requirements relating to
Afghanistan taxes, customs, duties, fees, or
similar charges when contracts are being
performed in Afghanistan.
The Agreement between the Islamic
Republic of Afghanistan and the U.S.
Government exempts the Government, and
its contractors and subcontractors (other than
those that are Afghan legal entities or
residents), from paying any tax or similar
charge assessed on activities associated with
contracts performed within Afghanistan.
The SOFA between NATO and the Islamic
Republic of Afghanistan exempts NATO
Forces and its contractors and subcontractors
(other than those that are Afghan legal
entities or residents) from paying any tax or
similar charge assessed within Afghanistan.
The objective is to notify contractors of
both the Agreement and SOFA to clarify how
they apply to contracts performed in
Afghanistan.
According to data in the Federal
Procurement Data System, the Government
awarded an annual average of 4,277 contracts
for fiscal years 2017 and 2018 with the
principal place of performance in
Afghanistan to 444 unique contractors
annually, of which 488 contracts were
awarded annually to 110 unique small
businesses (23 percent). There was an
average of 488 contracts with the principal
place of performance in Afghanistan awarded
annually to small businesses in fiscal years
2017 and 2018. There was an average of
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3,789 contracts with the principal place of
performance in Afghanistan awarded
annually to large businesses. The number of
potential subcontractors to which the clause
would flow down was calculated by using a
ratio of 1:3, subcontractors per prime contract
(4,277 annual prime contracts). This equates
to 1,426 subcontractors, of which DoD, GSA,
and NASA estimate that 75 percent would be
small entities (i.e., 1,069). The total number
of prime contractor and subcontractor small
businesses impacted annually is 1,577.
The proposed rule does not include
additional reporting, record keeping
requirements, or other compliance
requirements. The proposed rule does not
duplicate, overlap, or conflict with any other
Federal rules.
There are no available alternatives to the
proposed rule to accomplish the desired
objective of the statute. We do not expect this
proposed rule to have a significant economic
impact on a substantial number of small
entities, because the rule is not implementing
any new requirements with which small
entities must comply. Also, small entities
will benefit from having one
governmentwide clause that identifies the
current requirements relating to Afghanistan
taxes or similar charges when contracts are
being performed in Afghanistan.
The Regulatory Secretariat has
submitted a copy of the IRFA to the
Chief Counsel for Advocacy of the Small
Business Administration. A copy of the
IRFA may be obtained from the
Regulatory Secretariat. DoD, GSA, and
NASA invite comments from small
business concerns and other interested
parties on the expected impact of this
rule on small entities.
DoD, GSA, and NASA will also
consider comments from small entities
concerning the existing regulations in
subparts affected by the rule in
accordance with 5 U.S.C. 610. Interested
parties must submit such comments
separately and should cite 5 U.S.C 610
(FAR Case 2018–023), in
correspondence.
VII. Paperwork Reduction Act
This rule does not contain any
information collection requirements that
require the approval of the Office of
Management and Budget under the
Paperwork Reduction Act (44 U.S.C.
chapter 35).
List of Subjects in 48 CFR parts 12, 29,
and 52
Government procurement.
William F. Clark,
Director, Office of Government-wide
Acquisition Policy, Office of Acquisition
Policy, Office of Government-wide Policy.
Therefore, DoD, GSA, and NASA
propose amending 48 CFR parts 12, 29,
and 52 to read as follows:
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1. The authority citation for 48 CFR
parts 12, 29, and 52 continues to read
as follows:
■
Authority: 40 U.S.C. 121(c); 10 U.S.C.
chapter 137; and 51 U.S.C. 20113.
PART 12—ACQUISITION OF
COMMERCIAL ITEMS
2. Amend section 12.301 by
redesignating paragraph (d)(12) as
paragraph (d)(14), and adding new
paragraphs (d)(12) and (d)(13) to read as
follows:
■
12.301 Solicitation provisions and
contract clauses for the acquisition of
commercial items.
*
*
*
*
*
(d) * * *
(12) Insert the clause at 52.229–XX,
Taxes—Foreign Contracts in
Afghanistan, as prescribed in 29.402–
3(a).
(13) Insert the clause at 52.229–YY,
Taxes—Foreign Contracts in
Afghanistan (North Atlantic Treaty
Organization Status of Forces
Agreement), as prescribed in 29.402–
3(b).
*
*
*
*
*
29.001
[Added]
3. Add section 29.001 to read as
follows:
■
29.001
Definitions.
As used in this part—
‘‘North Atlantic Treaty Organization
(NATO) Forces’’ means the Members of
the Force, Members of the Civilian
Component, NATO Personnel and all
property, equipment, and materiel of
NATO, NATO Member States, and
Operational Partners present in the
territory of Afghanistan.
‘‘U.S. Forces’’ means the entity
comprising the members of the force
and of the civilian component, and all
property, equipment, and materiel of the
United States Armed Forces present in
the territory of Afghanistan.
29.402–3
[Added]
4. Add section 29.402–3 to read as
follows:
■
29.402–3 Taxes—Foreign Contracts in
Afghanistan.
(a) Use the clause at 52.229–XX,
Taxes—Foreign Contracts in
Afghanistan, in solicitations and
contracts with performance in
Afghanistan awarded by or on behalf of
U.S. Forces, unless the clause at 52.229–
YY is used.
(b) Use the clause at 52.229–YY,
Taxes—Foreign Contracts in
Afghanistan (North Atlantic Treaty
Organization Status of Forces
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Federal Register / Vol. 84, No. 183 / Friday, September 20, 2019 / Proposed Rules
Agreement), instead of the clause at
52.229–XX, Taxes—Foreign Contracts in
Afghanistan, in solicitations and
contracts with performance in
Afghanistan awarded on behalf of or in
support of the North Atlantic Treaty
Organization (NATO), which are
governed by the NATO Status of Forces
Agreement (SOFA).
PART 52—SOLICITATION PROVISIONS
AND CONTRACT CLAUSES
52.229–XX and 52.229–YY
[Added]
5. Add sections 52.229–XX and
52.229–YY to read as follows:
■
52.229–XX Taxes—Foreign Contracts in
Afghanistan.
As prescribed in 29.402–3(a), use the
following clause:
Taxes—Foreign Contracts in
Afghanistan (Date)
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(a) Definition. ‘‘U.S. Forces,’’ as used in
this clause, means the entity comprising the
members of the force and of the civilian
component, and all property, equipment, and
materiel of the United States Armed Forces
present in the territory of Afghanistan.
(b) Tax exemption. This acquisition is
covered by the Security and Defense
Cooperation Agreement (the Agreement)
between the Islamic Republic of Afghanistan
(Afghanistan) and the United States of
America signed on September 30, 2014, and
entered into force on January 1, 2015.
(1) The Agreement exempts the United
States Government, and its contractors and
subcontractors (other than those that are
Afghan legal entities or residents), from
paying any tax or similar charge assessed on
activities associated with this contract within
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Afghanistan if the activities are on behalf of
or in support of U.S. Forces. The Agreement
also exempts the acquisition, importation,
exportation, reexportation, transportation,
and use of supplies and services in
Afghanistan, on behalf of or in support of
U.S. Forces, from any taxes, customs, duties,
fees, or similar charges imposed by the
Government of Afghanistan.
(2) The Contractor shall exclude any
Afghan taxes, customs, duties, fees, or similar
charges from the contract price, other than
those charged to Afghan legal entities or
residents.
(3) The Agreement does not exempt Afghan
employees of Government contractors and
subcontractors from Afghan tax laws. To the
extent required by Afghan law, the
Contractor shall withhold tax from the wages
of these employees and remit those payments
to the appropriate Afghan taxing authority.
These withholdings are an individual’s
liability, not a tax against the Contractor.
(c) Subcontracts. The Contractor shall
include the substance of this clause,
including this paragraph (c), in all
subcontracts, including subcontracts for
commercial items.
(End of clause)
52.229–YY Taxes—Foreign Contracts in
Afghanistan (North Atlantic Treaty
Organization Status of Forces Agreement).
As prescribed in 29.402–3(b), use the
following clause:
TAXES—FOREIGN CONTRACTS IN
AFGHANISTAN (NORTH ATLANTIC
TREATY ORGANIZATION STATUS
OF FORCES AGREEMENT) (DATE)
(a) Definition. ‘‘North Atlantic Treaty
Organization (NATO) Forces,’’ as used in this
clause, means the Members of the Force,
Members of the Civilian Component, NATO
Personnel and all property, equipment, and
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49505
materiel of NATO, NATO Member States,
and Operational Partners present in the
territory of Afghanistan.
(b) Tax exemption. This acquisition is
covered by the Status of Forces Agreement
(SOFA) entered into between NATO and the
Islamic Republic of Afghanistan
(Afghanistan) issued on September 30, 2014,
and entered into force on January 1, 2015.
(1) The SOFA exempts NATO Forces and
its contractors and subcontractors (other than
those that are Afghan legal entities or
residents) from paying any tax or similar
charge assessed within Afghanistan if the
activities are on behalf of or in support of
NATO Forces. The SOFA also exempts the
acquisition, importation, exportation,
reexportation, transportation and use of
supplies and services in Afghanistan on
behalf of or in support of NATO Forces from
all Afghan taxes, customs, duties, fees, or
similar charges.
(2) The Contractor shall exclude any
Afghan taxes, customs, duties, fees or similar
charges from the contract price, other than
those charged to Afghan legal entities or
residents.
(3) Afghan citizens employed by NATO
contractors and subcontractors are subject to
Afghan tax laws. To the extent required by
Afghan law, the Contractor shall withhold
tax from the wages of these employees and
remit those withholdings to the appropriate
Afghan taxing authority. These withholdings
are an individual’s liability, not a tax against
the Contractor.
(c) Subcontracts. The Contractor shall
include the substance of this clause,
including this paragraph (c), in all
subcontracts including subcontracts for
commercial items.
(End of clause)
[FR Doc. 2019–20046 Filed 9–19–19; 8:45 am]
BILLING CODE 6820–EP–P
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]]>Agencies
[Federal Register Volume 84, Number 183 (Friday, September 20, 2019)]
[Proposed Rules]
[Pages 49502-49505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20046]
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 12, 29, and 52
[FAR Case 2018-023; Docket No. FAR-2018-0023, Sequence No. 1]
RIN 9000-AN68
Federal Acquisition Regulation: Taxes--Foreign Contracts in
Afghanistan
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Proposed rule.
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SUMMARY: DoD, GSA, and NASA are proposing to amend the Federal
Acquisition Regulation (FAR) to add two new clauses that notify
contractors of requirements relating to Afghanistan taxes or similar
charges when contracts are being performed in Afghanistan.
DATES: Interested parties should submit written comments to the
Regulatory Secretariat Division at one of the addresses shown below on
or before November 19, 2019 to be considered in the formation of the
final rule.
ADDRESSES: Submit comments in response to FAR Case 2018-023 using any
of the following methods:
Regulations.gov: https://www.regulations.gov. Submit
comments via the Federal eRulemaking portal by entering ``FAR Case
2018-023'' under the heading ``Enter Keyword or ID'' and selecting
``Search''. Select the link ``Submit a Comment'' that corresponds with
``FAR Case 2018-023''. Follow the instructions provided at the ``Submit
a Comment'' screen. Please include your name, company name (if any),
and ``FAR Case 2018-023'' on your attached document.
Mail: General Services Administration, Regulatory
Secretariat (MVCB), ATTN: Lois Mandell, 1800 F Street NW, 2nd Floor,
Washington, DC 20405.
Instructions: Please submit comments only and cite ``FAR Case 2018-
023'' in all correspondence related to this case. All comments received
will be posted without change to https://www.regulations.gov, including
any
[[Page 49503]]
personal and/or business confidential information provided.
FOR FURTHER INFORMATION CONTACT: Mr. Kevin Funk, Procurement Analyst,
at 202-357-5805 or [email protected] for clarification of content. For
information pertaining to status or publication schedules, contact the
Regulatory Secretariat at 202-501-4755. Please cite ``FAR Case 2018-
023.''
SUPPLEMENTARY INFORMATION:
I. Background
Agreements established with the Islamic Republic of Afghanistan
exempt the United States Government and the North Atlantic Treaty
Organization (NATO) Forces, and their contractors from liability for
Afghanistan taxes and similar charges (e.g. customs, duties, fees).
The Security and Defense Cooperation Agreement (the Agreement)
between the Islamic Republic of Afghanistan and the United States of
America was signed on September 30, 2014, and entered into force on
January 1, 2015. The Agreement exempts the United States Government,
and its contractors and subcontractors (other than those that are
Afghan legal entities or residents), from paying any tax or similar
charge assessed on activities associated with contracts performed
within Afghanistan. The Agreement also exempts the acquisition,
importation, exportation, reexportation, transportation, and use of
supplies and services in Afghanistan, by or on behalf of the United
States Government, from any taxes, customs, duties, fees, or similar
charges in Afghanistan.
The Status of Forces Agreement (SOFA) between NATO and the Islamic
Republic of Afghanistan was issued on September 30, 2014, and entered
into force on January 1, 2015. The SOFA exempts NATO Forces and its
contractors and subcontractors (other than those that are Afghan legal
entities or residents) from paying any tax or similar charge assessed
within Afghanistan. The SOFA also exempts the acquisition, importation,
exportation, reexportation, transportation and use of supplies and
services in Afghanistan from all Afghan taxes, customs, duties, fees,
or similar charges.
DoD, GSA, and NASA are proposing to add two new FAR clauses to
notify contractors of the exemptions under the Agreement and the SOFA.
This FAR rule was opened at the request of DoD's Regulatory Reform
Task Force (RRTF). The RRTF was established under Executive Order
13777, titled ``Enforcing the Regulatory Reform Agenda,'' which
requires agencies to evaluate existing regulations on whether they
should be repealed, replaced, modified, or retained. The focus of the
DoD RRTF was to reduce regulatory burden on the public. The DoD RRTF
recommended this case be opened, since these policies apply to multiple
federal agencies identified in this rule as a ``covered agency.'' Some
covered agencies have developed agency-level clauses. Therefore, the
recommendation was made to elevate and include this policy in the FAR.
This measure eliminates the need for agency-unique supplemental
regulations and ensures unified guidance among the affected agencies,
consistent with the purpose of the FAR system.
II. Discussion and Analysis
This proposed rule would notify contractors about the tax
exemptions described in Section I of this preamble by adding the
following two clauses:
FAR 52.229-XX, Taxes-Foreign Contracts in Afghanistan, is
proposed for inclusion in all solicitations and contracts, including
solicitations and contracts using FAR part 12 procedures for the
acquisition of commercial items, with performance in Afghanistan,
unless the clause at 52.229-YY is used. The Agreement incorporated by
this clause exempts: (1) The United States Government, and its
contractors and subcontractors, (other than those that are Afghan legal
entities or residents), from paying any tax or similar charge assessed
on activities associated with contracts within Afghanistan; and (2) the
acquisition, importation, exportation, reexportation, transportation,
and use of supplies and services in Afghanistan, by or on behalf of the
United States Government, from any taxes, customs, duties, or similar
charges in Afghanistan. Contractors are required to exclude any Afghan
taxes, customs, duties, or similar charges from contract prices, other
than those charged to Afghan legal entities or residents.
FAR 52.229-YY, Taxes--Foreign Contracts in Afghanistan
(North Atlantic Treaty Organization Status of Forces Agreement) is
proposed for inclusion, instead of clause 52.229-XX, Taxes-Foreign
Contracts in Afghanistan, in all solicitations and contracts, including
solicitations and contracts using FAR part 12 procedures for the
acquisition of commercial items, with performance in Afghanistan
awarded on behalf of NATO. The SOFA incorporated by this clause
exempts: (1) NATO Forces and its contractors and subcontractors (other
than those that are Afghan legal entities or residents) from paying any
tax or similar charge assessed within Afghanistan; and (2) the
acquisition, importation, exportation, transportation, and use of
supplies and services in Afghanistan, by or on behalf of the U.S.
Government, from all Afghan taxes, customs, duties, or similar charges.
Since both agreements are currently effective for contractors
operating in Afghanistan, this rule is only notifying contractors about
the exemptions from liability for Afghanistan taxes, customs, duties,
fees or similar charges. The rule is not adding any new requirements
for contractors; however, it is providing unified guidance for
contractors performing in Afghanistan. DoD issued a final rule on
December 30, 2015, at 80 FR 81467 that added similar clauses for
applicable DoD contracts.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT) and for Commercial Items, Including Commercially
Available Off-the-Shelf (COTS) Items
This rule creates two new clauses: (1) FAR 52.229-XX, Taxes--
Foreign Contracts in Afghanistan, and (2) FAR 52.229-YY, Taxes--Foreign
Contracts in Afghanistan (North Atlantic Treaty Organization Status of
Forces Agreement). The objective of the rule is to notify U.S.
Government contractors that contracts performed in Afghanistan are
exempt from payment liability for Afghan taxes, customs, duties, fees
or similar charges pursuant to the Agreement and SOFA.
DoD, GSA, and NASA are applying these two clauses to applicable
solicitations and contracts below the SAT and to the acquisition of
commercial items, including COTS items, as defined at FAR 2.101. This
rule clarifies the application of requirements relating to treatment of
Afghan taxes, customs, duties, fees or similar charges for contracts
performed in Afghanistan. Not applying these clauses to contracts below
the SAT and for the acquisition of commercial items, including COTS
items, would exclude contracts intended to be covered by this rule and
undermine the overarching purpose of the rule for providing guidance to
all applicable contractors. Consequently, DoD, GSA, and NASA are
applying the rule to applicable contracts below the SAT and for the
acquisition of applicable commercial items, including COTS items.
IV. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits
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(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). E.O. 13563 emphasizes the
importance of quantifying both costs and benefits, of reducing costs,
of harmonizing rules, and of promoting flexibility. This rule is a not
significant regulatory action and, therefore, is not subject to review
under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated
September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.
V. Executive Order 13771
This rule is not subject to E.O. 13771, because this rule is not a
significant regulatory action under E.O. 12866.
VI. Regulatory Flexibility Act
DoD, GSA, and NASA do not expect this rule to have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,
because this rule only clarifies contractor exemptions from Afghan
taxes, customs, duties, fees or similar charges on contracts performed
in Afghanistan. However, an Initial Regulatory Flexibility Analysis has
been performed, and is summarized as follows:
DoD, GSA, and NASA are proposing to amend the Federal
Acquisition Regulation (FAR) to add two new clauses that notify
contractors of requirements relating to Afghanistan taxes, customs,
duties, fees, or similar charges when contracts are being performed
in Afghanistan.
The Agreement between the Islamic Republic of Afghanistan and
the U.S. Government exempts the Government, and its contractors and
subcontractors (other than those that are Afghan legal entities or
residents), from paying any tax or similar charge assessed on
activities associated with contracts performed within Afghanistan.
The SOFA between NATO and the Islamic Republic of Afghanistan
exempts NATO Forces and its contractors and subcontractors (other
than those that are Afghan legal entities or residents) from paying
any tax or similar charge assessed within Afghanistan.
The objective is to notify contractors of both the Agreement and
SOFA to clarify how they apply to contracts performed in
Afghanistan.
According to data in the Federal Procurement Data System, the
Government awarded an annual average of 4,277 contracts for fiscal
years 2017 and 2018 with the principal place of performance in
Afghanistan to 444 unique contractors annually, of which 488
contracts were awarded annually to 110 unique small businesses (23
percent). There was an average of 488 contracts with the principal
place of performance in Afghanistan awarded annually to small
businesses in fiscal years 2017 and 2018. There was an average of
3,789 contracts with the principal place of performance in
Afghanistan awarded annually to large businesses. The number of
potential subcontractors to which the clause would flow down was
calculated by using a ratio of 1:3, subcontractors per prime
contract (4,277 annual prime contracts). This equates to 1,426
subcontractors, of which DoD, GSA, and NASA estimate that 75 percent
would be small entities (i.e., 1,069). The total number of prime
contractor and subcontractor small businesses impacted annually is
1,577.
The proposed rule does not include additional reporting, record
keeping requirements, or other compliance requirements. The proposed
rule does not duplicate, overlap, or conflict with any other Federal
rules.
There are no available alternatives to the proposed rule to
accomplish the desired objective of the statute. We do not expect
this proposed rule to have a significant economic impact on a
substantial number of small entities, because the rule is not
implementing any new requirements with which small entities must
comply. Also, small entities will benefit from having one
governmentwide clause that identifies the current requirements
relating to Afghanistan taxes or similar charges when contracts are
being performed in Afghanistan.
The Regulatory Secretariat has submitted a copy of the IRFA to the
Chief Counsel for Advocacy of the Small Business Administration. A copy
of the IRFA may be obtained from the Regulatory Secretariat. DoD, GSA,
and NASA invite comments from small business concerns and other
interested parties on the expected impact of this rule on small
entities.
DoD, GSA, and NASA will also consider comments from small entities
concerning the existing regulations in subparts affected by the rule in
accordance with 5 U.S.C. 610. Interested parties must submit such
comments separately and should cite 5 U.S.C 610 (FAR Case 2018-023), in
correspondence.
VII. Paperwork Reduction Act
This rule does not contain any information collection requirements
that require the approval of the Office of Management and Budget under
the Paperwork Reduction Act (44 U.S.C. chapter 35).
List of Subjects in 48 CFR parts 12, 29, and 52
Government procurement.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of
Acquisition Policy, Office of Government-wide Policy.
Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 12, 29,
and 52 to read as follows:
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1. The authority citation for 48 CFR parts 12, 29, and 52 continues to
read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
U.S.C. 20113.
PART 12--ACQUISITION OF COMMERCIAL ITEMS
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2. Amend section 12.301 by redesignating paragraph (d)(12) as paragraph
(d)(14), and adding new paragraphs (d)(12) and (d)(13) to read as
follows:
12.301 Solicitation provisions and contract clauses for the
acquisition of commercial items.
* * * * *
(d) * * *
(12) Insert the clause at 52.229-XX, Taxes--Foreign Contracts in
Afghanistan, as prescribed in 29.402-3(a).
(13) Insert the clause at 52.229-YY, Taxes--Foreign Contracts in
Afghanistan (North Atlantic Treaty Organization Status of Forces
Agreement), as prescribed in 29.402-3(b).
* * * * *
29.001 [Added]
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3. Add section 29.001 to read as follows:
29.001 Definitions.
As used in this part--
``North Atlantic Treaty Organization (NATO) Forces'' means the
Members of the Force, Members of the Civilian Component, NATO Personnel
and all property, equipment, and materiel of NATO, NATO Member States,
and Operational Partners present in the territory of Afghanistan.
``U.S. Forces'' means the entity comprising the members of the
force and of the civilian component, and all property, equipment, and
materiel of the United States Armed Forces present in the territory of
Afghanistan.
29.402-3 [Added]
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4. Add section 29.402-3 to read as follows:
29.402-3 Taxes--Foreign Contracts in Afghanistan.
(a) Use the clause at 52.229-XX, Taxes--Foreign Contracts in
Afghanistan, in solicitations and contracts with performance in
Afghanistan awarded by or on behalf of U.S. Forces, unless the clause
at 52.229-YY is used.
(b) Use the clause at 52.229-YY, Taxes--Foreign Contracts in
Afghanistan (North Atlantic Treaty Organization Status of Forces
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Agreement), instead of the clause at 52.229-XX, Taxes--Foreign
Contracts in Afghanistan, in solicitations and contracts with
performance in Afghanistan awarded on behalf of or in support of the
North Atlantic Treaty Organization (NATO), which are governed by the
NATO Status of Forces Agreement (SOFA).
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
52.229-XX and 52.229-YY [Added]
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5. Add sections 52.229-XX and 52.229-YY to read as follows:
52.229-XX Taxes--Foreign Contracts in Afghanistan.
As prescribed in 29.402-3(a), use the following clause:
Taxes--Foreign Contracts in Afghanistan (Date)
(a) Definition. ``U.S. Forces,'' as used in this clause, means
the entity comprising the members of the force and of the civilian
component, and all property, equipment, and materiel of the United
States Armed Forces present in the territory of Afghanistan.
(b) Tax exemption. This acquisition is covered by the Security
and Defense Cooperation Agreement (the Agreement) between the
Islamic Republic of Afghanistan (Afghanistan) and the United States
of America signed on September 30, 2014, and entered into force on
January 1, 2015.
(1) The Agreement exempts the United States Government, and its
contractors and subcontractors (other than those that are Afghan
legal entities or residents), from paying any tax or similar charge
assessed on activities associated with this contract within
Afghanistan if the activities are on behalf of or in support of U.S.
Forces. The Agreement also exempts the acquisition, importation,
exportation, reexportation, transportation, and use of supplies and
services in Afghanistan, on behalf of or in support of U.S. Forces,
from any taxes, customs, duties, fees, or similar charges imposed by
the Government of Afghanistan.
(2) The Contractor shall exclude any Afghan taxes, customs,
duties, fees, or similar charges from the contract price, other than
those charged to Afghan legal entities or residents.
(3) The Agreement does not exempt Afghan employees of Government
contractors and subcontractors from Afghan tax laws. To the extent
required by Afghan law, the Contractor shall withhold tax from the
wages of these employees and remit those payments to the appropriate
Afghan taxing authority. These withholdings are an individual's
liability, not a tax against the Contractor.
(c) Subcontracts. The Contractor shall include the substance of
this clause, including this paragraph (c), in all subcontracts,
including subcontracts for commercial items.
(End of clause)
52.229-YY Taxes--Foreign Contracts in Afghanistan (North Atlantic
Treaty Organization Status of Forces Agreement).
As prescribed in 29.402-3(b), use the following clause:
TAXES--FOREIGN CONTRACTS IN AFGHANISTAN (NORTH ATLANTIC TREATY
ORGANIZATION STATUS OF FORCES AGREEMENT) (DATE)
(a) Definition. ``North Atlantic Treaty Organization (NATO)
Forces,'' as used in this clause, means the Members of the Force,
Members of the Civilian Component, NATO Personnel and all property,
equipment, and materiel of NATO, NATO Member States, and Operational
Partners present in the territory of Afghanistan.
(b) Tax exemption. This acquisition is covered by the Status of
Forces Agreement (SOFA) entered into between NATO and the Islamic
Republic of Afghanistan (Afghanistan) issued on September 30, 2014,
and entered into force on January 1, 2015.
(1) The SOFA exempts NATO Forces and its contractors and
subcontractors (other than those that are Afghan legal entities or
residents) from paying any tax or similar charge assessed within
Afghanistan if the activities are on behalf of or in support of NATO
Forces. The SOFA also exempts the acquisition, importation,
exportation, reexportation, transportation and use of supplies and
services in Afghanistan on behalf of or in support of NATO Forces
from all Afghan taxes, customs, duties, fees, or similar charges.
(2) The Contractor shall exclude any Afghan taxes, customs,
duties, fees or similar charges from the contract price, other than
those charged to Afghan legal entities or residents.
(3) Afghan citizens employed by NATO contractors and
subcontractors are subject to Afghan tax laws. To the extent
required by Afghan law, the Contractor shall withhold tax from the
wages of these employees and remit those withholdings to the
appropriate Afghan taxing authority. These withholdings are an
individual's liability, not a tax against the Contractor.
(c) Subcontracts. The Contractor shall include the substance of
this clause, including this paragraph (c), in all subcontracts
including subcontracts for commercial items.
(End of clause)
[FR Doc. 2019-20046 Filed 9-19-19; 8:45 am]
BILLING CODE 6820-EP-P
