[Federal Register Volume 78, Number 19 (Tuesday, January 29, 2013)]
[Rules and Regulations]
[Pages 6185-6187]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01745]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 9 and 52
[FAC 2005-65; FAR Case 2012-013; Item I; Docket 2012-0013, Sequence 1]
RIN 9000-AM22
Federal Acquisition Regulation; Prohibition on Contracting With
Inverted Domestic Corporations
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 adopting as final, without change, an
interim rule amending the Federal Acquisition Regulation (FAR) to
implement a section of the Consolidated Appropriations Act, 2012, that
prohibits the award of contracts using appropriated funds to any
foreign incorporated entity that is treated as an inverted domestic
corporation or to any subsidiary of such entity.
DATES: Effective Date: January 29, 2013.
FOR FURTHER INFORMATION CONTACT: Mr. Michael O. Jackson, Procurement
Analyst, at 202-208-4949, 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 2012-
013.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published an interim rule in the Federal
Register at 77 FR 27547 on May 10, 2012, to implement section 738 of
Division C of the Consolidated Appropriations Act, 2012 (Pub. L. 112-
74), which was signed on December 23, 2011. The same Governmentwide
restrictions are already incorporated in the FAR for funds appropriated
in Fiscal Years 2008 through 2010, under FAR case 2008-009, published
as an interim rule on July 1, 2009 (74 FR 31561), and as a final rule
on May 31, 2011 (76 FR 31410).
An inverted domestic corporation is one that used to be
incorporated in the United States, or used to be a partnership in the
United States, but now is incorporated in a foreign country, or is a
subsidiary whose parent corporation is incorporated in a foreign
country. See the definition of inverted domestic corporation at FAR
9.108-1.
Six respondents submitted comments on the interim rule.
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 is provided
as follows:
A. Summary of Significant Changes
There are no changes to the interim rule as a result of the public
comments.
B. Analysis of Public Comments
1. Support for the Prohibition
Comment: Almost all respondents strongly supported the intent of
the rule, to prohibit the Government from doing business with inverted
domestic corporations. Some provided specific comments that the rule
should be enforced and continued. Some of the specific reasons provided
for support were as follows:
a. Impact on U.S. jobs.
Comment: Several respondents stated that when millions of people in
the United States are unemployed or under-employed, corporations that
have ``turned their back'' on the United States and probably eliminated
at least some of the jobs for American personnel should not receive
Government contracts.
Response: The Councils note that the views of these respondents are
in accord with the intent of the law and this FAR rule.
b. Companies should not be rewarded for tax avoidance.
Comment: Many respondents stated that companies should not be
rewarded for tax avoidance, which enables them to compete unfairly with
U.S. companies.
Response: The Councils note that the views of these respondents are
in accord with the intent of the law and this FAR rule.
c. One respondent discussed additional costly measures that are
required when dealing with inverted domestic corporations: e.g., proxy
agreements, authorization from national authorities, additional
security measures.
Response: The Councils note that the views of this respondent are
in accord with the intent of the law and this FAR rule.
2. Rule Should Be Even More Stringent
Comment: One respondent stated that the FAR rule on inverted
domestic corporations is a good beginning, but does not go far enough
to have any effect on the issue. The respondent requests that the
Government should also stop distributors of the products of inverted
domestic corporations from selling such products to the Government,
because the manufacturers pay no income tax, and products they make off
shore impede manufacturing growth of the United States economy and job
creation.
Response: Prior to this FAR case 2012-013, the FAR already
implemented restrictions that were contained in the FY 2008 through FY
2010 appropriations act restrictions: a provision at FAR 52.209-2,
Prohibition on Contracting with Inverted Domestic Corporations--
Representation; and a clause at 52.209-10, Prohibition on Contracting
with Inverted Domestic Corporations.
Comparable to the prior appropriations act restrictions, Section
738 of the Consolidated Appropriations Act, 2012 (Pub. L. 112-74),
Division C, Title VII, prohibits the use of FY 2012 funds for contracts
with any foreign entity which is treated as an inverted domestic
corporation under section 835(b) of the Homeland Security Act of 2002.
The statute only prohibits Government contracts directly awarded to an
inverted domestic corporation. It does not cover contracts to
distributors of the products of inverted domestic corporations.
The purpose of the interim rule under this FAR Case 2012-013 was to
extend the existing prohibition to solicitations and contracts using FY
2012 funds. It did not propose any changes in interpretation or
application of the statutory prohibition. Therefore, application to
distributors of the products of inverted domestic corporations is
outside the scope of this rule.
3. Relationship to Buy American Statute
Comment: One respondent stated that the Buy American Act of 1933
(now codified at 41 U.S.C. chapter 83) created
[[Page 6186]]
a precedent to prefer American-made products relative to non-
domestically produced ones. Therefore, it is proper for this act to
favor domestic firms over foreign firms.
Response: The Councils note that the prohibition in this rule is
not against all foreign firms, but only those foreign firms that are
inverted domestic corporations.
Comment: One respondent stated that all corporations based outside
the United States should be forbidden to receive business from any
branch of the U.S. Government.
Response: The Buy American statute promotes purchase of domestic
products, but provides certain exceptions that provide necessary
balance (such as unreasonable cost or nonavailability of domestic
products). In addition, the United States is party to the World Trade
Organization Government Procurement Agreement and numerous free trade
agreements, which provide the mutual benefit allowing the United States
to export more goods and services, in exchange for opening our markets
to the goods and services of countries that do not discriminate against
the United States in their trade practices.
Comment: One respondent stated a belief that inverted domestic
corporations are ``representing themselves as American companies'' and
that the U.S. military does not even know that they are receiving
``tools made off shore in the guises of Buy American Act.''
Response: The Government considers inverted domestic corporations
to be foreign companies, because they are incorporated outside the
United States and do not pay U.S. corporate income taxes. Furthermore,
for purposes of the Buy American statute, the key factor is not whether
the corporate entity is foreign or domestic, but whether the offered
product is a domestic end product: i.e., the product is manufactured in
the United States and the majority of the components are also of
domestic origin. If the Buy American statute applies to an acquisition,
the offeror must certify whether the offered product is a domestic end
product. In any solicitation that is predominantly for the acquisition
of manufactured end products, the offeror must also indicate whether
the place of manufacture of the offered products is in the United
States or outside the United States (FAR 52.225-18, Place of
Manufacture).
4. Possible Lack of Other Sources
Comment: One respondent, although generally supporting the rule,
was concerned about negative impact on DoD and NASA due to lack of
possible leeway if there is no domestic firm producing a particular
part that can only be obtained from an inverted domestic corporation.
Response: FAR 9.108-4 allows for a waiver of the prohibition, if an
agency head determines in writing that the waiver is required in the
interest of national security, documents the determination, and reports
it to Congress.
5. Impact on Small Business
Comment: Several respondents considered that the rule could have an
impact on small business, to the extent that a small business might now
receive an award that formerly would have been made to an inverted
domestic corporation, which would create a positive impact. One
respondent expressed the certainty that a myriad of products and
services can be re-directed to U.S.-based small businesses.
Another respondent did not disagree with the statement in the
interim rule that small businesses would not be impacted by the rule.
Response: With regard to re-direction of awards to small U.S.
businesses, the Federal Government already has an active program to set
aside awards for small businesses (see FAR subpart 19.5). Generally,
acquisitions with a value less than the simplified acquisition
threshold are set aside for small businesses, and contracting officers
are also required to set aside for small businesses acquisitions that
exceed the simplified acquisition threshold, when there is a reasonable
expectation that offers will be obtained from at least two responsible
small business concerns offering the products of different small
business concerns, and award will be made at fair market prices.
This final rule does not directly impact small business, because
the rule only extends the existing prohibition on contracting with
inverted domestic corporations to acquisitions using FY 2012 funds, and
the prohibition relates to foreign entities that are also generally
large multinational corporations. The fact that these particular
entities are now prohibited from contracting with the Government will
not have a significant impact on a substantial number of small
entities, because it only removes an insignificant number of
competitors and Government awards may still go to either large or small
businesses, either domestic or foreign, depending on other applicable
statutes and regulations. In some instances, depending on the product
to be provided and the extent of competition in that market, there may
be a minimal positive impact for some small businesses.
6. Prescription for Use of FAR 52.209-2
Comment: One respondent stated that the interim rule leaves
unchanged the text of FAR 9.108-5(a), which states the prescription for
use of the provision at FAR 52.209-2. According to the respondent, the
prescription conflicts with FAR 4.1202(e), which says not to separately
include FAR 52.209-2 in any solicitation that includes the clause at
FAR 52.204-7, Central Contractor Registration (CCR).
Response: This comment is outside the scope of this case, which did
not address FAR 9.108-5(a). The issue raised is a global issue that
affects the prescriptions for all provisions listed at FAR 4.1202(a)
through (bb). If the solicitation includes FAR 52.204-7, or the offeror
is registered in CCR and has completed the Online Representations and
Certifications Application (ORCA) electronically and chooses to rely on
the electronic representations and certifications, then paragraph (d)
of FAR 52.204-8, Annual Representations and Certifications, applies.
FAR 52.204-8, paragraph (d) allows reliance on representation in ORCA,
rather than separate inclusion of the representation in the
solicitation.
The current convention has been to independently prescribe the
clauses in the applicable FAR parts and then override the prescription
at FAR 4.1202, if the acquisition contains the clause at FAR 52.204-7
or the offeror meets the other conditions and chooses to make paragraph
(d) applicable. If the Councils decide to change this convention, then
it should be addressed in a proposed rule that provides a uniform
prescription format for all affected provisions, not be done piecemeal
for just one provision.
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 not a significant regulatory action and, therefore, was not
subject to review under section 6(b) of
[[Page 6187]]
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
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration certify that this
final rule will not 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 this rule will only
impact an offeror that is an inverted domestic corporation and wants to
do business with the Government. It is expected that the number of
entities impacted by this rule will be minimal. Small business concerns
are unlikely to have been incorporated in the United States and then
reincorporated in a tax haven; the major players in these transactions
are reportedly the very large multinational corporations. No domestic
entities will be directly impacted by this rule. For the definition of
``small business,'' the Regulatory Flexibility Act refers to the Small
Business Act, which in turn allows the U.S. Small Business
Administration (SBA) Administrator to specify detailed definitions or
standards (5 U.S.C. 601(3) and 15 U.S.C. 632(a)). The SBA regulations
at 13 CFR 121.105 discuss who is a small business: ``(a)(1) Except for
small agricultural cooperatives, a business concern eligible for
assistance from SBA as a small business is a business entity organized
for profit, with a place of business located in the United States, and
which operates primarily within the United States or which makes a
significant contribution to the U.S. economy through payment of taxes
or use of American products, materials or labor.'' Also see the
response to the comment at II.B.5. of this preamble. Therefore, a Final
Regulatory Flexibility Analysis has not been performed.
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 9 and 52
Government Procurement.
Dated: January 23, 2013.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of
Acquisition Policy, Office of Governmentwide Policy.
Interim Rule Adopted as Final Without Change
0
Accordingly, the interim rule amending 48 CFR parts 9 and 52, which was
published in the Federal Register at 77 FR 27547 on May 10, 2012, is
adopted as final without change.
[FR Doc. 2013-01745 Filed 1-28-13; 8:45 am]
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