[Federal Register Volume 78, Number 19 (Tuesday, January 29, 2013)]
[Rules and Regulations]
[Pages 6189-6191]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01750]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 31 and 52
[FAC 2005-65; FAR Case 2011-011; Item IV; Docket 2011-0011, Sequence 1]
RIN 9000-AM13
Federal Acquisition Regulation; Unallowability of Costs
Associated With Foreign Contractor Excise Tax
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the
Federal Acquisition Regulation (FAR) to implement certain requirements
of section 301 of the James Zadroga 9/11 Health and Compensation Act of
2010, which imposes a 2 percent excise tax on certain Federal
procurement payments to foreign persons. The rule disallows the cost
associated with the 2 percent excise tax on certain foreign
procurements.
DATES: Effective Date: February 28, 2013.
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 FAC 2005-65, FAR Case 2011-
011.
SUPPLEMENTARY INFORMATION:
I. Background
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 Act 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). Section 5000C imposes a 2 percent excise tax on payments
made to foreign persons pursuant to Government contracts for the
provision of goods or services, if the goods are manufactured or
produced in, or the services are performed in, a country that is not a
party to an international procurement agreement with the United States.
The statute applies to contracts entered into on or after January 2,
2011. The statute does not apply, however, if the imposition of the tax
would be inconsistent with any international agreement. The tax is to
be collected in a manner similar to other U.S. taxes withheld on
payments to foreign persons. Additionally, section 301 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).
On February 22, 2012, DoD, GSA, and NASA published a proposed rule
in the Federal Register at 77 FR 10461 implementing the prohibition
against reimbursement of the 2 percent excise tax, by revising the FAR
rules so that the cost of the tax cannot be included as part of a
payment, or as part of a cost-based negotiated price.
Regulations under section 5000C will be forthcoming from the
Department of the Treasury that will provide specific guidance
regarding the application of the tax and the procedures for withholding
the tax. Once the Department of the Treasury implements procedures for
withholding this 2 percent excise tax, the impact on
[[Page 6190]]
applicable FAR provisions will be handled in a separate FAR case.
II. Discussion and Analysis
The Civilian Agency Acquisition Council and the Defense Acquisition
Regulations Council (the Councils) reviewed the comments in the
development of the final rule. A discussion of the comments and the
changes made to the rule as a result of those comments are provided as
follows:
A. Summary of Significant Changes
To comply with the statute, FAR 31.205-41 is amended to inform the
Government and contractors that the costs of the 2 percent excise tax
are not allowable. FAR 52.229-3, 52.229-4, 52.229-6, and 52.229-7 are
amended to provide that the costs for the 2 percent excise tax are not
included in either foreign fixed-price contracts with a foreign concern
or foreign fixed-price contracts with foreign governments.
Based on a review of the public comments, discussed below, the
Councils have concluded that no change to the proposed rule is
necessary.
B. Analysis of Public Comments
The Regulatory Secretariat received responses from two respondents
to the proposed rule which are discussed below:
1. Intent of the rule.
Comment: One respondent believes the intent of this rule is to
encourage countries to sign the World Trade Organization (WTO)
Government Procurement Agreement (GPA) and other Free Trade Agreements
(FTAs) identified under FAR part 25.
Response: The intent of the FAR rule is to implement requirements
in the FAR to disallow the cost of the 2 percent excise tax mandated by
the Public Law 111-347. The FAR is the primary document for uniform
policies and procedures for acquisition by all executive agencies. FAR
part 25 provides policies and procedures applicable to acquisitions
that are covered by the trade agreements to which the United States is
a party.
2. Implementation of the 2 percent excise tax and withholding
procedures.
Comment: Both respondents submitted comments regarding the
implementation of the 2 percent excise tax and the Government's
intended withholding procedures. These comments included:
(a) Turkey is a member of the WTO, but is only an observer of the
WTO's GPA. Will the 2 percent excise tax be applied to Turkish
contractors?
(b) The rule is considered to be a violation of the trade and
investment agreements between Turkey and the U.S.
(c) The rule will impose a tax that will cause certain foreign
contractors to withdraw from contracting with the U.S. Government.
(d) The rule should apply to future contracts, not be retroactively
applied to already signed contracts.
(e) The rule degrades the U.S. Government's ability to procure
qualified contractors to perform in areas of the world, such as
Afghanistan.
(f) The rule creates unfair treatment to non-signatories of the WTO
GPA and favors WTO GPA signatories and U.S. contractors.
(g) The rule fails to define ``international procurement
agreement'' and the respondent believes that it refers only to the WTO
GPA and other Free Trade Agreements, as identified in FAR part 25.
(h) The respondent believes that contractors from WTO GPA signatory
countries will still be subject to the rule in the event that goods are
produced or services rendered in a non-signatory country.
(i) Will the 2 percent excise tax be withheld from payments to
subcontractors?
Response: The intent of the rule is to implement the requirements
of Public Law 111-347 in the FAR regarding the disallowance of the cost
of the 2 percent excise tax. This rule does not determine the extent to
which contract payments will be subject to the tax. Regulations under
section 5000C will be forthcoming from the Department of the Treasury,
which will provide guidance regarding the application of the tax and
the procedures for withholding the tax. This rule simply disallows the
tax as part of a payment, or as part of a cost-based negotiated price.
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.
The Office of Information and Regulatory Affairs (OIRA) has deemed that
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, and that this rule is not a major
rule under 5 U.S.C. 804.
IV. Regulatory Flexibility Act
DoD, GSA, and NASA have prepared a Final Regulatory Flexibility
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5
U.S.C. 601, et seq. The FRFA is summarized as follows:
DoD, GSA, and NASA do not expect this rule to have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.
because the 2 percent excise tax is applied only to foreign persons
that receive payments made pursuant to a contract with the
Government of the United States for the provision of goods, if such
goods are manufactured or produced in any country which is not a
party to an international procurement agreement with the United
States, or the provision of services, if such services are provided
in any country which is not a 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. Therefore,
this rule is expected to have no impact on domestic small business
concerns. There are no reporting, recordkeeping, or other compliance
requirements for this rule. The approach described in this rule is
the most practical and beneficial for both Government and industry.
Interested parties may obtain a copy of the FRFA from the
Regulatory Secretariat. The Regulatory Secretariat has submitted a copy
of the FRFA to the Chief Counsel for Advocacy of the Small Business
Administration.
V. Paperwork Reduction Act
The final 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: January 23, 2013.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of
Acquisition Policy, Office of Governmentwide Policy.
Therefore, DoD, GSA, and NASA amend 48 CFR parts 31 and 52 as set
forth below:
0
1. The authority citation for 48 CFR parts 31 and 52 continues to read
as follows:
[[Page 6191]]
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
U.S.C. 20113.
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
0
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
0
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 (FEB 2013)
* * * * *
(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.
* * * * *
0
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) (FEB
2013)
* * * * *
(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.
* * * * *
0
5. Amend section 52.229-6 by--
0
a. Revising the date of the clause;
0
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;
0
c. Adding paragraph (c)(2);
0
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
0
e. Adding paragraph (d)(2).
The revisions and additions read as follows:
52.229-6 Taxes--Foreign Fixed-Price Contracts.
* * * * *
Taxes--Foreign Fixed-Price Contracts (FEB 2013)
* * * * *
(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.
* * * * *
0
6. Amend section 52.229-7 by--
0
a. Revising the date of the clause;
0
b. Redesignating paragraph (b) as paragraph (b)(1); and
0
c. Adding paragraph (b)(2).
The revision and addition read as follows:
52.229-7 Taxes--Foreign Fixed-Price Contracts with Foreign
Governments.
* * * * *
Taxes--Foreign Fixed-Price Contracts With Foreign Governments (FEB
2013)
* * * * *
(b) * * *
(2) Taxes imposed under 26 U.S.C. 5000C may not be included in the
contract price.
* * * * *
[FR Doc. 2013-01750 Filed 1-28-13; 8:45 am]
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