Federal Acquisition Regulation: Tax on Certain Foreign Procurement, 49498-49502 [2019-20227]

Download as PDF 49498 Federal Register / Vol. 84, No. 183 / Friday, September 20, 2019 / Proposed Rules last registered speaker has concluded their comments. The EPA may ask clarifying questions during the oral presentations but will not respond to the presentations at that time. Written statements and supporting information submitted during the comment period will be considered with the same weight as oral comments and supporting information presented at the public hearing. Verbatim transcripts of the hearings and written statements will be included in the docket for the rulemaking. The EPA also encourages commenters to provide the EPA with a copy of their oral testimony electronically (via email) or in hard copy form. If you require the service of a translator or special accommodations such as audio description, please preregister for the hearing and describe your needs by October 14, 2019. We may not be able to arrange accommodations without advanced notice. The EPA will not provide audiovisual equipment for presentations. Any media presentations should be submitted to the public docket at https:// www.regulations.gov/, identified by Docket ID No. EPA–HQ–OAR–2017– 0757. The EPA must receive comments on the proposed action no later than 60 days after it publishes in the Federal Register. Dated: September 13, 2019. Panagiotis Tsirigotis, Director, Office of Air Quality Planning and Standards. [FR Doc. 2019–20242 Filed 9–19–19; 8:45 am] BILLING CODE 6560–50–P DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 1, 12, 25, 29, and 52 [FAR Case 2016–013; Docket No. FAR– 2016–0013, Sequence No. 1] khammond on DSKJM1Z7X2PROD with PROPOSALS RIN 9000–AN38 Federal Acquisition Regulation: Tax on Certain Foreign Procurement 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 SUMMARY: VerDate Sep<11>2014 16:49 Sep 19, 2019 Jkt 247001 Acquisition Regulation (FAR) to withhold a 2 percent tax on contract payments made by the United States Government to foreign persons pursuant to certain contracts. This rule applies to Federal government contracts for goods or services that are awarded to foreign persons. 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 2016–013 by any of the following methods: • Regulations.gov: http:// www.regulations.gov. Submit comments via the Federal eRulemaking portal by searching for ‘‘FAR Case 2016–013’’. Select the link ‘‘Comment Now’’ that corresponds with ‘‘FAR Case 2016– 013’’. Follow the instructions provided on the screen. Please include your name, company name (if any), and ‘‘FAR Case 2016–013’’ on your attached document. • Mail: General Services Administration, Regulatory Secretariat Division (MVCB), ATTN: Lois Mandell, 1800 F Street NW, 2nd Floor, Washington, DC 20405. Instructions: Please submit comments only and cite ‘‘FAR Case 2016–013’’ in all correspondence related to this case. All comments received will be posted without change to http:// www.regulations.gov, including any personal and/or business confidential information provided. To confirm receipt of your comment(s), please check http://www.regulations.gov, approximately 2 to 3 days after submission to verify posting (except allow 30 days for posting of comments submitted by mail). FOR FURTHER INFORMATION CONTACT: Ms. Zenaida Delgado, Procurement Analyst, at 202–969–7207 or zenaida.delgado@ gsa.gov for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat Division at 202– 501–4755. Please cite ‘‘FAR Case 2016– 013’’. SUPPLEMENTARY INFORMATION: I. Background DoD, GSA, and NASA are proposing to amend the FAR to implement the Department of the Treasury final regulations published in the Federal Register at 81 FR 55133 on August 18, 2016, under section 5000C of the Internal Revenue Code relating to the 2 percent tax on payments made by the United States (U.S.) Government to PO 00000 Frm 00016 Fmt 4702 Sfmt 4702 foreign entities pursuant to certain contracts. This proposed rule only addresses the collection of the section 5000C tax from contract payments on certain foreign contracts by withholding up to 2 percent of the payment. The agency merely withholds the tax for the Internal Revenue Service (IRS). All substantive issues regarding the underlying section 5000C tax, e.g., the imposition of, and exemption from the tax, are matters under the jurisdiction of the IRS. FAR 29.204 and 29.402–3 give more information on the contracts that are covered, and exemptions or exceptions that might apply. On January 2, 2011, section 301 of the James Zadroga 9/11 Health and Compensation Act of 2010, Public Law 111–347 (the Act), added section 5000C to the Internal Revenue Code (Code). 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, imposed, unless exempted, a 2 percent excise tax of the amount of a specified Federal procurement payment on any foreign person receiving such payment. 26 CFR 1.5000C–1(c) defines the term specified Federal procurement payment as any payment made pursuant to a contract with the U.S. Government for goods or services if the goods are manufactured or produced, or the services are provided, in any country that is not a party to an international procurement agreement with the United States (see FAR 25.003 for the definitions of ‘‘World Trade Organization Government Procurement Agreement (WTO GPA) country’’ and ‘‘Free Trade Agreement country’’, per the IRS definition at 1.5000C–1(a)(8)). Section 301(a)(3) of the Act provides that section 5000C applies to payments received pursuant to contracts entered into on and after the date of enactment of the Act, January 2, 2011. Additionally, section 301(c) of the Act states that this section must be applied in a manner consistent with U.S. obligations under international agreements. Section 5000C(d)(1) provides that the amount deducted and withheld under chapter 3 shall be increased by the amount of tax imposed under 26 U.S.C. 5000C. DoD, GSA, and NASA issued a final rule under FAR Case 2011–011, Unallowability of Costs Associated With Foreign Contractor Excise Tax, amending the FAR to disallow the cost associated with the 2 percent excise tax on certain foreign procurements. The final rule was published in the Federal Register at 78 FR 6189 on January 29, 2013. E:\FR\FM\20SEP1.SGM 20SEP1 khammond on DSKJM1Z7X2PROD with PROPOSALS Federal Register / Vol. 84, No. 183 / Friday, September 20, 2019 / Proposed Rules II. Discussion and Analysis As required by the Code, DoD, GSA, and NASA are proposing to implement the withholding of a 2 percent tax on payments made by the U.S. Government to foreign persons pursuant to certain contracts. A. The following summarizes the proposed changes to FAR parts 1, 12, 25, and 29: 1. Adds segments for the new provision FAR 52.229–WW, Tax on Certain Foreign Procurements—Notice and Representation, and the new clause at FAR 52.229–XX, Tax on Certain Foreign Procurements, at FAR 1.106, OMB approval under the Paperwork Reduction Act. 2. Adds the new provision FAR 52.229–WW, Tax on Certain Foreign Procurements—Notice and Representation, to paragraph (d) in FAR 12.301, Solicitation provisions and contract clauses for the acquisition of commercial items. 3. Adds a new section 25.1003, Tax on certain foreign procurements, under subpart 25.10, Additional Foreign Acquisition Regulations, that provides a reference to a new FAR section at FAR 29.204. 4. Adds a new section at FAR 29.204, Federal excise tax on specific foreign contract payments, explaining the excise tax requirements to contracting officers. 5. Adds a new section 29.402–3, Tax on certain foreign procurements, under 29.402, Foreign contracts, to prescribe the use of the new provision FAR 52.229–WW, Tax on Certain Foreign Procurements—Notice and Representation, and the new clause at FAR 52.229–XX, Tax on Certain Foreign Procurements. B. The following summarizes proposed changes to FAR part 52. 1. Amends paragraph (b) of the clause at FAR 52.212–5, Contract Terms and Conditions Required To Implement Statutes or Executive Orders— Commercial Items, to add the new clause 52.229–XX, Tax on Certain Foreign Procurements. 2. Adds a new provision at FAR 52.229–WW, Tax on Certain Foreign Procurements—Notice and Representation, to notify offerors of the excise tax withholding requirements and to have them represent whether they are a foreign person; and whether they would claim an exemption on the Department of the Treasury Internal Revenue Service Form W–14, Certificate of Foreign Contracting Party Receiving Federal Procurement Payments. This form is available at www.irs.gov/w14. 3. Adds a new clause at FAR 52.229– XX, Tax on Certain Foreign VerDate Sep<11>2014 16:49 Sep 19, 2019 Jkt 247001 Procurements, to establish the excise tax withholding requirements in the FAR. III. Expected Impact of the Rule Acquiring agencies are required to withhold the excise tax under 26 U.S.C. 5000C. The exemptions from the withholding in the IRS regulations at 26 CFR 1.5000C–1(d)(1) through (d)(4) are captured under the new provision prescription at FAR 29.402–3(a). If any of the conditions listed at FAR 29.402– 3(a) are met, the payments under the contract will not be subject to the withholding. The other exemptions at 26 CFR 1.5000C–1(d), (d)(5) through (d)(7), must be claimed by the offeror by submitting an IRS Form W–14 with the offer. If no exemption applies or is claimed, contractors will be subject to the tax and will be required to complete IRS Form W–14, and submit this form with each voucher or invoice for the agency to withhold the tax as appropriate. Federal Procurement Data System (FPDS) data for Fiscal Year (FY) 2018 was obtained for contracts valued over $150,000 awarded to foreign vendors. There were 8,395 total awards made to a total of 1,595 unique foreign entities. The IRS regulations defined the term ‘‘international procurement agreement’’ as the World Trade Organization GPA (WTO GPA) within the meaning of FAR 25.400(a)(1) and any free trade agreement to which the United States is a party that includes government procurement obligations that provide appropriate competitive government procurement opportunities to U.S. goods, services, and suppliers. Excluding the countries listed in the definitions of ‘‘World Trade Organization Government Procurement Agreement (WTO GPA) country’’ and ‘‘Free Trade Agreement country’’ in FAR 25.003 (see exemption at 26 CFR 1.5000C–1(d)(7)), a more accurate number of impacted entities may be estimated to be 461 unique foreign vendors. This number is minimal when compared to the total number of unique vendors for FY 2018 of 142,051, or approximately 0.32 percent. The FAR regulation covers withholding, not the imposition of the tax, which was implemented in the IRS regulation. Any monies which the contractor thinks a contracting agency has wrongfully withheld can be reclaimed by the contractor when it files its U.S. tax return. PO 00000 Frm 00017 Fmt 4702 Sfmt 4702 49499 IV. Applicability to Contracts at or Below the Simplified Acquisition Threshold and for Commercial Items, Including Commercially Available Offthe-Shelf (COTS) Items Pursuant to 41 U.S.C. 1905–1907, a provision of law is not applicable to: contracts or subcontracts in amounts not greater than the simplified acquisition threshold (SAT) (as defined in FAR 2.101); and the acquisition of commercial items, including COTS items. However, the provision of law is applicable when the law (i) contains criminal or civil penalties; (ii) specifically refers to 41 U.S.C. 1905– 1907 and states that the law applies to contracts or subcontracts in amounts not greater than the SAT, or the acquisition of commercial items including COTS items; (iii) the FAR Council makes a written determination that it is not in the best interest of the Federal Government to exempt contracts or subcontracts at or below the SAT and for acquisition of commercial items; or the Administrator for Federal Procurement Policy makes a written determination that it would not be in the best interest of the Federal Government to exempt contracts for the procurement of COTS items from this law. United States tax laws contain criminal and civil penalties; thus, commercial items, including commercially available off-the-shelf items, are subject to the new provision and clause unless otherwise exempted. The new provision and clause are not applicable to acquisitions using simplified acquisition procedures that do not exceed the simplified acquisition threshold because the IRS regulations at 26 CFR 1.5000C–1(d)(1) exempted them from the tax—see the prescriptions at FAR 29.402–3(a)(1) and (b)(1). V. 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 (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 is a significant regulatory action and, therefore, was 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. E:\FR\FM\20SEP1.SGM 20SEP1 49500 Federal Register / Vol. 84, No. 183 / Friday, September 20, 2019 / Proposed Rules VI. Executive Order 13771 This proposed rule is not expected to be an E.O. 13771 regulatory action, because this rule imposes de minimis costs on the public as explained in section III, Expected Impact of the Rule, of this preamble. The FAR Council invites comments from the regulated community on the analysis provided in this rule. khammond on DSKJM1Z7X2PROD with PROPOSALS VII. Regulatory Flexibility Act The Treasury final rule concluded that a Regulatory Flexibility Analysis was not required and that the rule will not have a significant economic impact on a substantial number of small entities. The Treasury final rule stated that because section 5000C(a) of the Internal Revenue Code applies to foreign persons, regardless of the size of the entity, only a limited number of small foreign entities that received specified Federal procurement payments are affected by the regulation. FPDS data for FY 2018 shows only 59 unique small foreign entities were awarded contracts valued over $150,000. This rule is not expected to have a significant economic impact on a substantial number of small entities based in the United States because this only applies to Federal government contracts for goods or services that are awarded to foreign persons. The FAR regulation covers withholding, not the imposition of the tax, which was implemented in the IRS regulation. Any monies which the contractor thinks a contracting agency has wrongfully withheld can be reclaimed by the contractor when it files its U.S. tax return. DoD, GSA, and NASA have, however, prepared an Initial Regulatory Flexibility Analysis (IRFA) of the FAR rule consistent with 5 U.S.C. 603, which is summarized as follows: DoD, GSA, and NASA are proposing to amend the FAR to withhold a 2 percent tax on payments made by the U.S. Government to foreign persons pursuant to certain contracts. The objective is to implement a final rule issued by the Department of the Treasury (published at 81 FR 55133) that implements section 301 of the James Zadroga 9/11 Health and Compensation Act of 2010, Public Law 111–347 (the Act), adding section 5000C to the Internal Revenue Code (Code). 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, imposed, unless exempted, a 2 percent excise tax of the amount of a specified Federal procurement payment on any foreign person receiving such payment. The rule would apply to Federal government contracts that are awarded to foreign persons for goods or services, if the goods are manufactured or produced or the VerDate Sep<11>2014 16:49 Sep 19, 2019 Jkt 247001 services are provided in any country that is not a party to an international procurement agreement with the United States (see FAR 25.003 for the definitions of ‘‘World Trade Organization Government Procurement Agreement (WTO GPA) country’’ and ‘‘Free Trade Agreement country’’). FPDS data for FY 2018 was obtained for contracts valued over $150,000 awarded to foreign vendors. There were 8,395 total awards, 8,178 were to large vendors; 217 were to small vendors. Of these, 1,536 were unique large foreign entities while 59 were unique small foreign entities for a total of 1,595 unique foreign entities. Accordingly, the proposed rule is not expected to have a significant economic impact on a substantial number of small entities based in the United States. The 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. The Regulatory Secretariat Division 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 Division. 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 2016–013), in correspondence. VIII. Paperwork Reduction Act The Paperwork Reduction Act (44 U.S.C. Chapter 35) does apply. However, these changes to the FAR do not impose additional information collection requirements to the paperwork burden previously approved for the IRS, Department of the Treasury regulations under the Office of Management and Budget (OMB) Control Number 1545–2263, Tax on Certain Foreign Procurement (see 80 FR 22449, April 22, 2015 and 82 FR 41310 at 41312, August 30, 2017). List of Subjects in 48 CFR Parts 1, 12, 25, 29, and 52 Government procurement. Therefore, DoD, GSA, and NASA are proposing to amend 48 CFR parts 1, 12, 25, 29, and 52 as set forth below: Frm 00018 Fmt 4702 Sfmt 4702 Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 U.S.C. 20113. PART 1—FEDERAL ACQUISITION REGULATIONS SYSTEM 2. In section 1.106 amend the table by adding entries for ‘‘52.229–WW’’ and ‘‘52.229–XX’’ in numerical order to read as follows: ■ OMB control No. FAR segment * * * 52.229–WW .......................... 52.229–XX ............................ * * * * * 1545–2263 1545–2263 * * PART 12—ACQUISITION OF COMMERCIAL ITEMS 3. Amend section 12.301, by redesignating paragraph (d)(12) as (d)(13) and adding a new paragraph (d)(12) to read as follows: ■ 12.301 Solicitation provisions and contract clauses for the acquisition of commercial items. * * * * * (d) * * * (12) Insert the provision at 52.229– WW, Tax on Certain Foreign Procurements—Notice and Representation, in solicitations as prescribed in 29.402–3(a). The representation in this provision is not in the System for Award Management. * * * * * PART 25—FOREIGN ACQUISITION 4. Add section 25.1003 to read as follows: ■ 25.1003 Tax on certain foreign procurements. See 29.204 for the imposition of the tax on certain foreign procurements pursuant to the James Zadroga 9/11 Health and Compensation Act of 2010 (Pub. L. 111–347), 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. PART 29—TAXES William F. Clark, Director, Office of Government-wide Acquisition Policy, Office of Acquisition Policy, Office of Government-Wide Policy. PO 00000 1. The authority citation for 48 CFR parts 1, 12, 25, 29, and 52 continues to read as follows: ■ 5. Add sections 29.204 and 29.402–3 to read as follows: ■ 29.204 Federal excise tax on specific foreign contract payments. (a) 26 U.S.C. 5000C, Imposition of tax on certain foreign procurement, and its E:\FR\FM\20SEP1.SGM 20SEP1 khammond on DSKJM1Z7X2PROD with PROPOSALS Federal Register / Vol. 84, No. 183 / Friday, September 20, 2019 / Proposed Rules implementing regulations at 26 CFR 1.5000C–1 through 1.5000C–7 require acquiring agencies to collect this excise tax via withholding on applicable contract payments (see 29.402–3, 31.205–41(b)(8)). Agencies merely withhold the tax (section 5000C tax) for the Internal Revenue Service (IRS). All substantive issues regarding the underlying section 5000C tax, e.g., the imposition of, and exemption from the tax, are matters under the jurisdiction of the IRS. The contracting officer will refer all questions relating to the interpretation of the IRS regulations to https://www.irs.gov/help/tax-lawquestions. (b) In accordance with the clause 52.229–XX, Tax on Certain Foreign Procurements, contractors that are subject to the section 5000C tax will complete IRS Form W–14, Certificate of Foreign Contracting Party Receiving Federal Procurement Payments, and submit this form with each voucher or invoice. 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 is available via the internet at www.irs.gov/w14. (c)(1) Exemptions from the withholding in the IRS regulations at 26 CFR 1.5000C–1(d)(1) through (d)(4) are captured under the provision prescription at 29.402–3(a) (i.e., the contracting officer will not include the provision when one of the 29.402–3(a) exceptions applies). (2) The exemptions at 26 CFR 1.5000C–1(d)(5) through (d)(7) must be claimed by the offeror when it submits an IRS Form W–14 with the offer. If not submitted with the offer, exemptions will not be applied to the contract. (3) Any exemption claimed and selfcertified 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. (d) The exemptions in 29.201 through 29.302 do not apply to this section 5000C tax. (e) Additional information about this excise tax on specific foreign contract payments is available via the internet at https://www.irs.gov/governmententities/excise-tax-on-specified-federalforeign-procurement-payments. 29.402–3 Tax on certain foreign procurements. (a) Insert the provision at 52.229– WW, Tax on Certain Foreign VerDate Sep<11>2014 16:49 Sep 19, 2019 Jkt 247001 Procurements—Notice and Representation, in solicitations, including solicitations using FAR part 12 procedures for the acquisition of commercial items, unless one of the following exceptions applies: (1) Acquisitions using simplified acquisition procedures that do not exceed the simplified acquisition threshold (as defined in 2.101). (2) Emergency acquisitions using the emergency acquisition flexibilities defined in part 18. (3) Acquisitions using the unusual and compelling urgency authority per 6.302–2. (4) Contracts with a single individual for personal services that will not exceed the simplified acquisition threshold on an annual calendar year basis for all years of the contract. (5) Acquisitions if the requiring activity identifies that the requirement is for certain foreign humanitarian assistance contracts which are payments made by the U.S. Government agencies pursuant to a contract with a foreign contracting party to obtain goods or services described in or authorized under 7 U.S.C. 1691, et seq., 22 U.S.C. 2151, et seq., 22 U.S.C. 2601 et seq., 22 U.S.C. 5801 et seq., 22 U.S.C. 5401 et seq., 10 U.S.C. 402, 10 U.S.C. 404, 10 U.S.C. 407, 10 U.S.C. 2557, and 10 U.S.C. 2561. (b) Insert the clause at 52.229–XX, Tax on Certain Foreign Procurements, in— (1) Solicitations that contain the provision at 52.229–WW, Tax on Certain Foreign Procurements—Notice and Representation; and (2) Resultant contracts in which the contractor has indicated that it was a foreign person in solicitation provision 52.229–WW, Tax on Certain Foreign Procurements—Notice and Representation. PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES 6. Amend section 52.212–5 by— a. Revising the date of the clause; b. Redesignating paragraphs (b)(53) through (60) as paragraphs (b)(54) through (61) and adding a new paragraph (b)(53) to read as follows: ■ ■ ■ 52.212–5 Contract Terms and Conditions Required To Implement Statutes or Executive Orders—Commercial Items. * * * * * Contract Terms and Conditions Required to Implement Statutes or Executive Orders—Commercial Items ([DATE]) * * * * * (b) * * * PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 49501 ___(53) 52.229–XX, Tax on Certain Foreign Procurements ([DATE]). * * * * * 7. Add sections 52.229–WW and 52.229–XX to read as follows: ■ 52.229–WW Tax on Certain Foreign Procurements—Notice and Representation. As prescribed in 29.402–3(a), insert the following provision: Tax on Certain Foreign Procurements— Notice and Representation ([DATE]) (a) Definitions. As used in this provision— Foreign person means any person other than a United States person. Specified Federal procurement payment means any payment made pursuant to a contract with a foreign contracting party that is for goods, manufactured or produced, or services provided in a foreign country that is not a party to an international procurement agreement with the United States. For purposes of the prior sentence, a foreign country does not include an outlying area. 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) Unless exempted, there is a 2 percent tax of the amount of a specified Federal procurement payment on any foreign person receiving such payment. See 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) Exemptions from withholding under this provision are described at 26 CFR 1.5000C–1(d)(5) through (d)(7). The Offeror would claim an exemption from the withholding by using the Department of the Treasury Internal Revenue Service Form W– 14, Certificate of Foreign Contracting Party Receiving Federal Procurement Payments, available via the internet at www.irs.gov/w14. 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. The IRS Form W–14 is provided to the acquiring agency rather than to the IRS. (d) For purposes of withholding under 26 U.S.C. 5000C, Imposition of tax on certain foreign procurement, the Offeror represents that— (1) It [_]is [_]is not a foreign person; and (2) If the Offeror indicates ‘‘is’’ in paragraph (d)(1) of this provision, then the Offeror represents that—I am claiming on the IRS Form W–14 [__] a full exemption, or [__] partial or no exemption [Offeror shall select one] from the excise tax. E:\FR\FM\20SEP1.SGM 20SEP1 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: khammond on DSKJM1Z7X2PROD with PROPOSALS 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 VerDate Sep<11>2014 16:49 Sep 19, 2019 Jkt 247001 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. PO 00000 Frm 00020 Fmt 4702 Sfmt 4702 (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: E:\FR\FM\20SEP1.SGM 20SEP1

Agencies

[Federal Register Volume 84, Number 183 (Friday, September 20, 2019)]
[Proposed Rules]
[Pages 49498-49502]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20227]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 12, 25, 29, and 52

[FAR Case 2016-013; Docket No. FAR-2016-0013, Sequence No. 1]
RIN 9000-AN38


Federal Acquisition Regulation: Tax on Certain Foreign 
Procurement

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: DoD, GSA, and NASA are proposing to amend the Federal 
Acquisition Regulation (FAR) to withhold a 2 percent tax on contract 
payments made by the United States Government to foreign persons 
pursuant to certain contracts. This rule applies to Federal government 
contracts for goods or services that are awarded to foreign persons.

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 2016-013 by any of 
the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by searching for ``FAR Case 
2016-013''. Select the link ``Comment Now'' that corresponds with ``FAR 
Case 2016-013''. Follow the instructions provided on the screen. Please 
include your name, company name (if any), and ``FAR Case 2016-013'' on 
your attached document.
     Mail: General Services Administration, Regulatory 
Secretariat Division (MVCB), ATTN: Lois Mandell, 1800 F Street NW, 2nd 
Floor, Washington, DC 20405.
    Instructions: Please submit comments only and cite ``FAR Case 2016-
013'' in all correspondence related to this case. All comments received 
will be posted without change to http://www.regulations.gov, including 
any personal and/or business confidential information provided. To 
confirm receipt of your comment(s), please check http://www.regulations.gov, approximately 2 to 3 days after submission to 
verify posting (except allow 30 days for posting of comments submitted 
by mail).

FOR FURTHER INFORMATION CONTACT: Ms. Zenaida Delgado, Procurement 
Analyst, at 202-969-7207 or [email protected] for clarification 
of content. For information pertaining to status or publication 
schedules, contact the Regulatory Secretariat Division at 202-501-4755. 
Please cite ``FAR Case 2016-013''.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA are proposing to amend the FAR to implement the 
Department of the Treasury final regulations published in the Federal 
Register at 81 FR 55133 on August 18, 2016, under section 5000C of the 
Internal Revenue Code relating to the 2 percent tax on payments made by 
the United States (U.S.) Government to foreign entities pursuant to 
certain contracts. This proposed rule only addresses the collection of 
the section 5000C tax from contract payments on certain foreign 
contracts by withholding up to 2 percent of the payment. The agency 
merely withholds the tax for the Internal Revenue Service (IRS). All 
substantive issues regarding the underlying section 5000C tax, e.g., 
the imposition of, and exemption from the tax, are matters under the 
jurisdiction of the IRS. FAR 29.204 and 29.402-3 give more information 
on the contracts that are covered, and exemptions or exceptions that 
might apply.
    On January 2, 2011, section 301 of the James Zadroga 9/11 Health 
and Compensation Act of 2010, Public Law 111-347 (the Act), added 
section 5000C to the Internal Revenue Code (Code). 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, imposed, unless 
exempted, a 2 percent excise tax of the amount of a specified Federal 
procurement payment on any foreign person receiving such payment. 26 
CFR 1.5000C-1(c) defines the term specified Federal procurement payment 
as any payment made pursuant to a contract with the U.S. Government for 
goods or services if the goods are manufactured or produced, or the 
services are provided, in any country that is not a party to an 
international procurement agreement with the United States (see FAR 
25.003 for the definitions of ``World Trade Organization Government 
Procurement Agreement (WTO GPA) country'' and ``Free Trade Agreement 
country'', per the IRS definition at 1.5000C-1(a)(8)). Section 
301(a)(3) of the Act provides that section 5000C applies to payments 
received pursuant to contracts entered into on and after the date of 
enactment of the Act, January 2, 2011. Additionally, section 301(c) of 
the Act states that this section must be applied in a manner consistent 
with U.S. obligations under international agreements. Section 
5000C(d)(1) provides that the amount deducted and withheld under 
chapter 3 shall be increased by the amount of tax imposed under 26 
U.S.C. 5000C.
    DoD, GSA, and NASA issued a final rule under FAR Case 2011-011, 
Unallowability of Costs Associated With Foreign Contractor Excise Tax, 
amending the FAR to disallow the cost associated with the 2 percent 
excise tax on certain foreign procurements. The final rule was 
published in the Federal Register at 78 FR 6189 on January 29, 2013.

[[Page 49499]]

II. Discussion and Analysis

    As required by the Code, DoD, GSA, and NASA are proposing to 
implement the withholding of a 2 percent tax on payments made by the 
U.S. Government to foreign persons pursuant to certain contracts.
    A. The following summarizes the proposed changes to FAR parts 1, 
12, 25, and 29:
    1. Adds segments for the new provision FAR 52.229-WW, Tax on 
Certain Foreign Procurements--Notice and Representation, and the new 
clause at FAR 52.229-XX, Tax on Certain Foreign Procurements, at FAR 
1.106, OMB approval under the Paperwork Reduction Act.
    2. Adds the new provision FAR 52.229-WW, Tax on Certain Foreign 
Procurements--Notice and Representation, to paragraph (d) in FAR 
12.301, Solicitation provisions and contract clauses for the 
acquisition of commercial items.
    3. Adds a new section 25.1003, Tax on certain foreign procurements, 
under subpart 25.10, Additional Foreign Acquisition Regulations, that 
provides a reference to a new FAR section at FAR 29.204.
    4. Adds a new section at FAR 29.204, Federal excise tax on specific 
foreign contract payments, explaining the excise tax requirements to 
contracting officers.
    5. Adds a new section 29.402-3, Tax on certain foreign 
procurements, under 29.402, Foreign contracts, to prescribe the use of 
the new provision FAR 52.229-WW, Tax on Certain Foreign Procurements--
Notice and Representation, and the new clause at FAR 52.229-XX, Tax on 
Certain Foreign Procurements.
    B. The following summarizes proposed changes to FAR part 52.
    1. Amends paragraph (b) of the clause at FAR 52.212-5, Contract 
Terms and Conditions Required To Implement Statutes or Executive 
Orders--Commercial Items, to add the new clause 52.229-XX, Tax on 
Certain Foreign Procurements.
    2. Adds a new provision at FAR 52.229-WW, Tax on Certain Foreign 
Procurements--Notice and Representation, to notify offerors of the 
excise tax withholding requirements and to have them represent whether 
they are a foreign person; and whether they would claim an exemption on 
the Department of the Treasury Internal Revenue Service Form W-14, 
Certificate of Foreign Contracting Party Receiving Federal Procurement 
Payments. This form is available at www.irs.gov/w14.
    3. Adds a new clause at FAR 52.229-XX, Tax on Certain Foreign 
Procurements, to establish the excise tax withholding requirements in 
the FAR.

III. Expected Impact of the Rule

    Acquiring agencies are required to withhold the excise tax under 26 
U.S.C. 5000C. The exemptions from the withholding in the IRS 
regulations at 26 CFR 1.5000C-1(d)(1) through (d)(4) are captured under 
the new provision prescription at FAR 29.402-3(a). If any of the 
conditions listed at FAR 29.402-3(a) are met, the payments under the 
contract will not be subject to the withholding. The other exemptions 
at 26 CFR 1.5000C-1(d), (d)(5) through (d)(7), must be claimed by the 
offeror by submitting an IRS Form W-14 with the offer. If no exemption 
applies or is claimed, contractors will be subject to the tax and will 
be required to complete IRS Form W-14, and submit this form with each 
voucher or invoice for the agency to withhold the tax as appropriate.
    Federal Procurement Data System (FPDS) data for Fiscal Year (FY) 
2018 was obtained for contracts valued over $150,000 awarded to foreign 
vendors. There were 8,395 total awards made to a total of 1,595 unique 
foreign entities. The IRS regulations defined the term ``international 
procurement agreement'' as the World Trade Organization GPA (WTO GPA) 
within the meaning of FAR 25.400(a)(1) and any free trade agreement to 
which the United States is a party that includes government procurement 
obligations that provide appropriate competitive government procurement 
opportunities to U.S. goods, services, and suppliers. Excluding the 
countries listed in the definitions of ``World Trade Organization 
Government Procurement Agreement (WTO GPA) country'' and ``Free Trade 
Agreement country'' in FAR 25.003 (see exemption at 26 CFR 1.5000C-
1(d)(7)), a more accurate number of impacted entities may be estimated 
to be 461 unique foreign vendors. This number is minimal when compared 
to the total number of unique vendors for FY 2018 of 142,051, or 
approximately 0.32 percent. The FAR regulation covers withholding, not 
the imposition of the tax, which was implemented in the IRS regulation. 
Any monies which the contractor thinks a contracting agency has 
wrongfully withheld can be reclaimed by the contractor when it files 
its U.S. tax return.

IV. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold and for Commercial Items, Including Commercially Available 
Off-the-Shelf (COTS) Items

    Pursuant to 41 U.S.C. 1905-1907, a provision of law is not 
applicable to: contracts or subcontracts in amounts not greater than 
the simplified acquisition threshold (SAT) (as defined in FAR 2.101); 
and the acquisition of commercial items, including COTS items. However, 
the provision of law is applicable when the law (i) contains criminal 
or civil penalties; (ii) specifically refers to 41 U.S.C. 1905-1907 and 
states that the law applies to contracts or subcontracts in amounts not 
greater than the SAT, or the acquisition of commercial items including 
COTS items; (iii) the FAR Council makes a written determination that it 
is not in the best interest of the Federal Government to exempt 
contracts or subcontracts at or below the SAT and for acquisition of 
commercial items; or the Administrator for Federal Procurement Policy 
makes a written determination that it would not be in the best interest 
of the Federal Government to exempt contracts for the procurement of 
COTS items from this law. United States tax laws contain criminal and 
civil penalties; thus, commercial items, including commercially 
available off-the-shelf items, are subject to the new provision and 
clause unless otherwise exempted.
    The new provision and clause are not applicable to acquisitions 
using simplified acquisition procedures that do not exceed the 
simplified acquisition threshold because the IRS regulations at 26 CFR 
1.5000C-1(d)(1) exempted them from the tax--see the prescriptions at 
FAR 29.402-3(a)(1) and (b)(1).

V. 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 (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 is a significant regulatory action and, therefore, was 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.

[[Page 49500]]

VI. Executive Order 13771

    This proposed rule is not expected to be an E.O. 13771 regulatory 
action, because this rule imposes de minimis costs on the public as 
explained in section III, Expected Impact of the Rule, of this 
preamble. The FAR Council invites comments from the regulated community 
on the analysis provided in this rule.

VII. Regulatory Flexibility Act

    The Treasury final rule concluded that a Regulatory Flexibility 
Analysis was not required and that the rule will not have a significant 
economic impact on a substantial number of small entities. The Treasury 
final rule stated that because section 5000C(a) of the Internal Revenue 
Code applies to foreign persons, regardless of the size of the entity, 
only a limited number of small foreign entities that received specified 
Federal procurement payments are affected by the regulation. FPDS data 
for FY 2018 shows only 59 unique small foreign entities were awarded 
contracts valued over $150,000. This rule is not expected to have a 
significant economic impact on a substantial number of small entities 
based in the United States because this only applies to Federal 
government contracts for goods or services that are awarded to foreign 
persons. The FAR regulation covers withholding, not the imposition of 
the tax, which was implemented in the IRS regulation. Any monies which 
the contractor thinks a contracting agency has wrongfully withheld can 
be reclaimed by the contractor when it files its U.S. tax return. DoD, 
GSA, and NASA have, however, prepared an Initial Regulatory Flexibility 
Analysis (IRFA) of the FAR rule consistent with 5 U.S.C. 603, which is 
summarized as follows:

    DoD, GSA, and NASA are proposing to amend the FAR to withhold a 
2 percent tax on payments made by the U.S. Government to foreign 
persons pursuant to certain contracts.
    The objective is to implement a final rule issued by the 
Department of the Treasury (published at 81 FR 55133) that 
implements section 301 of the James Zadroga 9/11 Health and 
Compensation Act of 2010, Public Law 111-347 (the Act), adding 
section 5000C to the Internal Revenue Code (Code). 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, 
imposed, unless exempted, a 2 percent excise tax of the amount of a 
specified Federal procurement payment on any foreign person 
receiving such payment.
    The rule would apply to Federal government contracts that are 
awarded to foreign persons for goods or services, if the goods are 
manufactured or produced or the services are provided in any country 
that is not a party to an international procurement agreement with 
the United States (see FAR 25.003 for the definitions of ``World 
Trade Organization Government Procurement Agreement (WTO GPA) 
country'' and ``Free Trade Agreement country''). FPDS data for FY 
2018 was obtained for contracts valued over $150,000 awarded to 
foreign vendors. There were 8,395 total awards, 8,178 were to large 
vendors; 217 were to small vendors. Of these, 1,536 were unique 
large foreign entities while 59 were unique small foreign entities 
for a total of 1,595 unique foreign entities. Accordingly, the 
proposed rule is not expected to have a significant economic impact 
on a substantial number of small entities based in the United 
States.
    The 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.

    The Regulatory Secretariat Division 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 Division. 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 2016-013), 
in correspondence.

VIII. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. Chapter 35) does apply. 
However, these changes to the FAR do not impose additional information 
collection requirements to the paperwork burden previously approved for 
the IRS, Department of the Treasury regulations under the Office of 
Management and Budget (OMB) Control Number 1545-2263, Tax on Certain 
Foreign Procurement (see 80 FR 22449, April 22, 2015 and 82 FR 41310 at 
41312, August 30, 2017).

List of Subjects in 48 CFR Parts 1, 12, 25, 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 are proposing to amend 48 CFR parts 
1, 12, 25, 29, and 52 as set forth below:

0
1. The authority citation for 48 CFR parts 1, 12, 25, 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 1--FEDERAL ACQUISITION REGULATIONS SYSTEM

0
2. In section 1.106 amend the table by adding entries for ``52.229-WW'' 
and ``52.229-XX'' in numerical order to read as follows:

------------------------------------------------------------------------
                                                            OMB control
                       FAR segment                              No.
------------------------------------------------------------------------
 
                                * * * * *
52.229-WW...............................................       1545-2263
52.229-XX...............................................       1545-2263
 
                                * * * * *
------------------------------------------------------------------------

PART 12--ACQUISITION OF COMMERCIAL ITEMS

0
3. Amend section 12.301, by redesignating paragraph (d)(12) as (d)(13) 
and adding a new paragraph (d)(12) to read as follows:


12.301   Solicitation provisions and contract clauses for the 
acquisition of commercial items.

* * * * *
    (d) * * *
    (12) Insert the provision at 52.229-WW, Tax on Certain Foreign 
Procurements--Notice and Representation, in solicitations as prescribed 
in 29.402-3(a). The representation in this provision is not in the 
System for Award Management.
* * * * *

PART 25--FOREIGN ACQUISITION

0
4. Add section 25.1003 to read as follows:


25.1003   Tax on certain foreign procurements.

    See 29.204 for the imposition of the tax on certain foreign 
procurements pursuant to the James Zadroga 9/11 Health and Compensation 
Act of 2010 (Pub. L. 111-347), 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.

PART 29--TAXES

0
5. Add sections 29.204 and 29.402-3 to read as follows:


29.204  Federal excise tax on specific foreign contract payments.

    (a) 26 U.S.C. 5000C, Imposition of tax on certain foreign 
procurement, and its

[[Page 49501]]

implementing regulations at 26 CFR 1.5000C-1 through 1.5000C-7 require 
acquiring agencies to collect this excise tax via withholding on 
applicable contract payments (see 29.402-3, 31.205-41(b)(8)). Agencies 
merely withhold the tax (section 5000C tax) for the Internal Revenue 
Service (IRS). All substantive issues regarding the underlying section 
5000C tax, e.g., the imposition of, and exemption from the tax, are 
matters under the jurisdiction of the IRS. The contracting officer will 
refer all questions relating to the interpretation of the IRS 
regulations to https://www.irs.gov/help/tax-law-questions.
    (b) In accordance with the clause 52.229-XX, Tax on Certain Foreign 
Procurements, contractors that are subject to the section 5000C tax 
will complete IRS Form W-14, Certificate of Foreign Contracting Party 
Receiving Federal Procurement Payments, and submit this form with each 
voucher or invoice. 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 is available via the internet at 
www.irs.gov/w14.
    (c)(1) Exemptions from the withholding in the IRS regulations at 26 
CFR 1.5000C-1(d)(1) through (d)(4) are captured under the provision 
prescription at 29.402-3(a) (i.e., the contracting officer will not 
include the provision when one of the 29.402-3(a) exceptions applies).
    (2) The exemptions at 26 CFR 1.5000C-1(d)(5) through (d)(7) must be 
claimed by the offeror when it submits an IRS Form W-14 with the offer. 
If not submitted with the offer, exemptions will not be applied to the 
contract.
    (3) 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.
    (d) The exemptions in 29.201 through 29.302 do not apply to this 
section 5000C tax.
    (e) Additional information about this excise tax on specific 
foreign contract payments is available via the internet at https://www.irs.gov/government-entities/excise-tax-on-specified-federal-foreign-procurement-payments.


29.402-3   Tax on certain foreign procurements.

    (a) Insert the provision at 52.229-WW, Tax on Certain Foreign 
Procurements--Notice and Representation, in solicitations, including 
solicitations using FAR part 12 procedures for the acquisition of 
commercial items, unless one of the following exceptions applies:
    (1) Acquisitions using simplified acquisition procedures that do 
not exceed the simplified acquisition threshold (as defined in 2.101).
    (2) Emergency acquisitions using the emergency acquisition 
flexibilities defined in part 18.
    (3) Acquisitions using the unusual and compelling urgency authority 
per 6.302-2.
    (4) Contracts with a single individual for personal services that 
will not exceed the simplified acquisition threshold on an annual 
calendar year basis for all years of the contract.
    (5) Acquisitions if the requiring activity identifies that the 
requirement is for certain foreign humanitarian assistance contracts 
which are payments made by the U.S. Government agencies pursuant to a 
contract with a foreign contracting party to obtain goods or services 
described in or authorized under 7 U.S.C. 1691, et seq., 22 U.S.C. 
2151, et seq., 22 U.S.C. 2601 et seq., 22 U.S.C. 5801 et seq., 22 
U.S.C. 5401 et seq., 10 U.S.C. 402, 10 U.S.C. 404, 10 U.S.C. 407, 10 
U.S.C. 2557, and 10 U.S.C. 2561.
    (b) Insert the clause at 52.229-XX, Tax on Certain Foreign 
Procurements, in--
    (1) Solicitations that contain the provision at 52.229-WW, Tax on 
Certain Foreign Procurements--Notice and Representation; and
    (2) Resultant contracts in which the contractor has indicated that 
it was a foreign person in solicitation provision 52.229-WW, Tax on 
Certain Foreign Procurements--Notice and Representation.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
6. Amend section 52.212-5 by--
0
a. Revising the date of the clause;
0
b. Redesignating paragraphs (b)(53) through (60) as paragraphs (b)(54) 
through (61) and adding a new paragraph (b)(53) to read as follows:


52.212-5   Contract Terms and Conditions Required To Implement Statutes 
or Executive Orders--Commercial Items.

* * * * *

Contract Terms and Conditions Required to Implement Statutes or 
Executive Orders--Commercial Items ([DATE])

* * * * *
    (b) * * *
    ___(53) 52.229-XX, Tax on Certain Foreign Procurements ([DATE]).
* * * * *
0
 7. Add sections 52.229-WW and 52.229-XX to read as follows:


52.229-WW  Tax on Certain Foreign Procurements--Notice and 
Representation.

    As prescribed in 29.402-3(a), insert the following provision:

Tax on Certain Foreign Procurements--Notice and Representation ([DATE])

    (a) Definitions. As used in this provision--
    Foreign person means any person other than a United States 
person.
    Specified Federal procurement payment means any payment made 
pursuant to a contract with a foreign contracting party that is for 
goods, manufactured or produced, or services provided in a foreign 
country that is not a party to an international procurement 
agreement with the United States. For purposes of the prior 
sentence, a foreign country does not include an outlying area.
    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) Unless exempted, there is a 2 percent tax of the amount of a 
specified Federal procurement payment on any foreign person 
receiving such payment. See 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) Exemptions from withholding under this provision are 
described at 26 CFR 1.5000C-1(d)(5) through (d)(7). The Offeror 
would claim an exemption from the withholding by using the 
Department of the Treasury Internal Revenue Service Form W-14, 
Certificate of Foreign Contracting Party Receiving Federal 
Procurement Payments, available via the internet at www.irs.gov/w14. 
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. The 
IRS Form W-14 is provided to the acquiring agency rather than to the 
IRS.
    (d) For purposes of withholding under 26 U.S.C. 5000C, 
Imposition of tax on certain foreign procurement, the Offeror 
represents that--
    (1) It [_]is [_]is not a foreign person; and
    (2) If the Offeror indicates ``is'' in paragraph (d)(1) of this 
provision, then the Offeror represents that--I am claiming on the 
IRS Form W-14 [__] a full exemption, or [__] partial or no exemption 
[Offeror shall select one] from the excise tax.

[[Page 49502]]

    (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:

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 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.
(End of clause)
[FR Doc. 2019-20227 Filed 9-19-19; 8:45 am]
 BILLING CODE 6820-EP-P