§ 3525.801-73 - Designated contractors.

(a) Definition.

Designated contractors means:

(1)(i) Natural persons who are nationals or permanent residents of the United States, or

(ii) Corporations or other legal entities organized under the laws of the United States, any state thereof, or the District of Columbia, and which are under the effective control of such natural persons—

(A) To whom contracts are awarded by the Commission, and

(B) Who are so designated in writing by the Commission.

(2) The term also includes subcontractors of designated contractors:

(i) Who are nationals or permanent residents of the United States, or

(ii) Which are corporations or other legal entities organized under the laws of the United States, any state thereof, or the District of Columbia, and which are under the effective control of United States nationals or permanent residents.

(3) Because Article XI of the Treaty's Implementing Agreement (see paragraph (b) of this subsection and 3502.101) imposes certain obligations and confers certain benefits on designated contractors, all of which are dependent upon their or their employees’ physical presence in Panama, the term is understood to mean only those contractors and/or subcontractors that will perform all or a portion of the contract work in the Republic of Panama. Such contractors are normally designated at the time of contract award.

(b) Obligations and benefits. Designated contractors are subject to the laws and regulations of the Republic of Panama except for certain obligations and benefits established in Article XI of the Agreement in Implementation of Article III of the Treaty. These obligations and benefits are cited below.

(1) The contractor must engage exclusively in activities related to the execution of the work for which the contractor has been contracted by the Commission or related to other works or activities authorized by the Republic of Panama.

(2) The contractor must refrain from carrying out practices which may constitute violations of the laws of the Republic of Panama.

(3) The contractor shall enter and depart from the territory of the Republic of Panama in accordance with procedures prescribed for United States citizen employees in Article XII of the Implementing Agreement.

(4) The contractor must obtain a document indicating his/her identity as a contractor, which the proper authorities of the United States shall issue when they are satisfied that the contractor is duly qualified. This certificate shall be sufficient to permit the contractor to operate under Panamanian law as a contractor of the United States. Nevertheless, the authorities of the Republic of Panama may require the registration of the appropriate documents to establish juridical presence in the Republic of Panama.

(5) The contractor shall not be obliged to pay any tax or other assessment to the Republic of Panama on income derived under a contract with the Commission, so long as the contractor is taxed in the United States at a rate substantially equivalent to the corresponding taxes and assessments of the Republic of Panama.

(6) The contractor may move freely within the Republic of Panama, and shall have exemptions from customs duties and other charges, as provided for United States citizen employees in the Implementing Agreement.

(7) The contractor may use public services and installations in accordance with the terms and conditions of Article XIII of the Implementing Agreement and, on a non-discriminatory basis, shall pay the Republic of Panama highway tolls and taxes on plates for private vehicles.

(8) The contractor shall be exempt from any taxes imposed on depreciable assets belonging to the contractor, other than real estate, which are used exclusively for the execution of contracts with the United States.

(9) The contractor may use the services and facilities provided for in Articles X and XVIII of the Agreement in Implementation of Article IV of the Panama Canal Treaty, to the extent such use is authorized by the United States; provided, however, that after five years from the entry into force of the Implementing Agreement, the use of military postal services by such contractors shall be limited to that related to the execution of contracts with the United States.

(c) Notification of designation. The contracting officer shall, through the Director, Office of Executive Administration, advise contractors that they are “designated contractors” within the meaning of Article XI of the Implementing Agreement and advise them to review their obligations thereunder. Such designations shall be communicated to the authorities of the Republic of Panama by the authorities of the United States. Contracting officers shall maintain current lists of “designated contractors” at all times.

(d) Withdrawal of designation. The Commission shall withdraw the designation of a contractor when any of the following circumstances occur:

(1) Completion or termination of the contract with the Commission.

(2) Proof that during the life of the contract such contractors have engaged in the Republic of Panama in business activities not related to their contracts with the United States nor authorized by the Republic of Panama.

(3) Proof that such contractors are engaged in practices which in the view of the Republic of Panama constitute serious violations of the laws of the Republic of Panama.

The authorities of the United States shall notify the authorities of the Republic of Panama whenever the designation of a contractor has been withdrawn. If, within sixty days after notification of the withdrawal of the designation of a contractor who entered the territory of the Republic of Panama in the capacity of a contractor, the authorities of the Republic of Panama require such contractor to leave its territory, the United States shall ensure that the Republic of Panama shall not incur any expense due to the cost of transportation.

(e) Impact on subcontractors, employees, and dependents. The provisions of this 3525.801-73 shall similarly apply to the subcontractors and to the employees of the contractors and subcontractors and their dependents who are nationals or residents of the United States. These employees and dependents shall not be subject to the Panamanian Social Security system.