2012-3905. Federal Acquisition Regulation; Unallowability of Costs Associated With Foreign Contractor Excise Tax

AGENCIES:

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 implement the requirements of the James Zadroga 9/11 Health and Compensation Act of 2010 regarding the imposition of a 2 percent tax on certain foreign procurements.

DATES:

Interested parties should submit written comments to the Regulatory Secretariat at one of the addressees shown below on or before April 23, 2012 to be considered in the formation of the final rule.

ADDRESSES:

Submit comments in response to FAR case 2011-011 by any of the following methods:

• Regulations.gov: http://www.regulations.gov. Submit comments via the Federal eRulemaking portal by inputting “FAR Case 2011-011” under the heading “Enter Keyword or ID” and selecting “Search.” Select the link “Submit a Comment” that corresponds with “FAR Case 2011-011.” Follow the instructions provided at the “Submit a Comment” screen. Please include your name, company name (if any), and “FAR Case 2011-011” on your attached document.
• Fax: [phone].
• Mail: General Services Administration, Regulatory Secretariat (MVCB), Attn: Hada Flowers, 1275 First Street NE., 7th Floor, Washington, DC 20417.

Instructions: Please submit comments only and cite FAR Case 2011-011, 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.

FOR FURTHER INFORMATION CONTACT:

Mr. Edward N. Chambers, Procurement Analyst, at [phone] for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at [phone]. Please cite FAR Case 2011-011.

SUPPLEMENTARY INFORMATION:

I. Background

DoD, GSA, and NASA are proposing to revise the FAR to implement a policy that imposes on any foreign person that receives a specified Federal procurement payment a tax equal to 2 percent of the amount of such specified Federal procurement payment. Additionally, the law stipulates that no funds are to be disbursed to any foreign contractor in order to reimburse the tax imposed (26 U.S.C. 5000C Note).

The James Zadroga 9/11 Health and Compensation Act of 2010 (Pub. L. 111-347) was signed into law and effective on January 2, 2011. Section 301 of the law amends the Internal Revenue Code of 1986 by adding a new Section 5000C, Imposition of tax on certain foreign procurements (26 U.S.C. 5000C). This new section imposes on any foreign person that receives a specified Federal procurement payment a tax equal to 2 percent of the amount of such specified Federal procurement payment. Additionally, the law stipulates that no funds are to be disbursed to any foreign contractor in order to reimburse the tax imposed (26 U.S.C. 5000C Note).

II. Discussion and Analysis

To comply with the law, the FAR Council is proposing to amend FAR 31.205-41 to inform the Government and contractors that the costs of the 2 percent tax are not allowable, and at FAR 52.229-3, 52.229-4, 52.229-6 and 52.229-7, to provide that the costs for the 2 percent tax are not included in foreign fixed-price contracts and foreign fixed-price contracts with foreign governments. The law states that it “shall be applied in a manner consistent with international agreements.” The law states that the 2 percent excise tax is applied to foreign persons that receive Federal procurement payments pursuant to a contract with the Government of the United States for the provision of goods, if such goods are manufactured or produced in a covered country, or for the provision of services if those services are provided in a covered country. “Covered country” means a country that is not a country that is party to an international procurement agreement with the United States. “Foreign person” means any person (including any individual, partnership, corporation, or other form of association) other than a United States person. The law applies to contracts entered into on or after January 2, 2011. The procedures for withholding this 2 percent tax are being handled in a separate FAR case.

III. 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.

IV. Regulatory Flexibility Act

The change may 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. The Initial Regulatory Flexibility Analysis (IRFA) is summarized as follows:

At this time an estimate of the number of small entities to which this rule will apply is not available. The 2 percent excise tax is only applied to foreign persons that receive Federal procurement payments pursuant to a contract with the Government of the United States for the provision of goods, if such goods are manufactured or produced in a covered country, or for the provision of services if those services are provided in a covered country. “Foreign person” means any person (including any individual, partnership, corporation, or other form of association) other than a United States person. “Covered country” means a country that is not a country that is party to an international procurement agreement with the United States.

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 this 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 2011-011) in correspondence.

V. Paperwork Reduction Act

The 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 31 and 52

• Government procurement

Dated: February 14, 2012.

Laura Auletta,

Director, Office of Governmentwide Acquisition Policy, Office of Acquisition Policy, Office of Governmentwide Policy.

Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 31 and 52 as set forth below:

1. The authority citation for 48 CFR parts 31 and 52 continues to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 U.S.C. 2473(c).

PART 31—CONTRACT COST PRINCIPLES AND PROCEDURE

2. Amend section 31.205-41 by adding paragraph (b)(8) to read as follows:

31.205-41

Taxes.

* * * * *

(b) * * *

(8) Any tax imposed under 26 U.S.C. 5000C.

* * * * *

PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES

3. Amend section 52.229-3 by revising the date of the clause and paragraph (b) to read as follows:

52.229-3

Federal, State, and Local Taxes.

* * * * *

Federal, State, and Local Taxes (date)

* * * * *

(b)(1) The contract price includes all applicable Federal, State, and local taxes and duties, except as provided in subparagraph (b)(2)(i) of this clause.

(2) Taxes imposed under 26 U.S.C. 5000C may not be—

(i) Included in the contract price; nor

(ii) Reimbursed.

* * * * *

4. Amend section 52.229-4 by revising the date of the clause and paragraph (b) to read as follows:

52.229-4

Federal, State, and Local Taxes (State and Local Adjustments).

* * * * *

Federal, State, and Local Taxes (state and local adjustments) (Date)

* * * * *

(b)(1) Unless otherwise provided in this contract, the contract price includes all applicable Federal, State, and local taxes and duties, except as provided in subparagraph (b)(2)(i) of this clause.

(2) Taxes imposed under 26 U.S.C. 5000C may not be—

(i) Included in the contract price; nor

(ii) Reimbursed.

* * * * *

5. Amend section 52.229-6 by:

(a) Revising the date of the clause;

(b) Redesignating paragraph (c) as (c)(1); removing from the newly designated paragraph (c)(1) “States.” and adding “States, except as provided in subparagraph (c)(2) of this clause.” in its place;

(c) Adding a new paragraph (c)(2);

(d) Redesignating paragraph (d) as (d)(1); removing from the newly designated paragraph (d)(1) “The contract price shall” and adding “Except as provided in subparagraph (d)(2) of this clause, the contract price shall” in its place; and

(e) Adding a new paragraph (d)(2).

The revised and newly added text reads as follows:

52.229-6

Taxes-Foreign Fixed—Price Contracts.

* * * * *

Taxes-Foreign Fixed-Price Contracts (Date)

* * * * *

(c)(1) * * *

(2) Taxes imposed under 26 U.S.C. 5000C may not be—

(i) Included in the contract price; nor

(ii) Reimbursed.

(d)(1) * * *

(2) The contract price may not be increased to offset taxes imposed under 26 U.S.C. 5000c.

* * * * *

6. Amend section 52.229-7 by:

a. Revising the date of the clause;

b. Redesignating paragraph (b) as (b)(1); and

c. Adding a new paragraph (b)(2).

The revised and newly added text reads as follows:

52.229-7

Taxes-Foreign Fixed-Price Contract With Foreign Governments.

* * * * *

Taxes-Foreign Fixed-Price Contracts With Foreign Governments (Date)

* * * * *

(b) * * *

(2) Taxes imposed under 26 U.S.C. 5000c may not be included in the contract price.

* * * * *