[Federal Register Volume 77, Number 35 (Wednesday, February 22, 2012)]
[Proposed Rules]
[Pages 10461-10463]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-3905]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 31 and 52

[FAR Case 2011-011; Docket 2011-0011; Sequence 1]
RIN 9000-AM13


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.

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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: (202) 501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (MVCB), Attn: Hada Flowers, 1275 First

[[Page 10462]]

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 (202) 501-3221 for clarification of content. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. 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

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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.
* * * * *
[FR Doc. 2012-3905 Filed 2-21-12; 8:45 am]
BILLING CODE 6820-EP-P