[Federal Register: September 30, 2005 (Volume 70, Number 189)]
[Rules and Regulations]               
[Page 57191-57193]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30se05-30]                         

-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

48 CFR Parts 225, 229, and 252

[DFARS Case 2004-D012]

 
Defense Federal Acquisition Regulation Supplement; Prohibition of 
Foreign Taxation on U.S. Assistance Programs

AGENCY: Department of Defense (DoD).

ACTION: Interim rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: DoD has issued an interim rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to implement a statutory 
prohibition on foreign taxation under contracts funded by U.S. 
assistance programs. The rule addresses the responsibilities of the 
contractor and the contracting officer regarding the prohibition.

DATES: This interim rule is effective September 30, 2005. Comments on 
the interim rule should be submitted in writing to the address shown 
below on or before November 29, 2005, to be considered in the formation 
of the final rule.

ADDRESSES: You may submit comments, identified by DFARS Case 2004-D012, 
using any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 

Follow the instructions for submitting comments.
     Defense Acquisition Regulations Web site: http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm.
 Follow the instructions for 

submitting comments.

[[Page 57192]]

     E-mail: dfars@osd.mil. Include DFARS Case 2004-D012 in the 
subject line of the message.
     Fax: (703) 602-0350.
     Mail: Defense Acquisition Regulations Council, Attn: Ms. 
Debra Overstreet, OUSD (AT&L) DPAP (DAR), IMD 3C132, 3062 Defense 
Pentagon, Washington, DC 20301-3062.
     Hand Delivery/Courier: Defense Acquisition Regulations 
Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 
22202-3402.
    All comments received will be posted to http://emissary.acq.osd.mil/dar/dfars.nsf
.


FOR FURTHER INFORMATION CONTACT: Ms. Debra Overstreet, (703) 602-0296.

SUPPLEMENTARY INFORMATION:

A. Background

    This interim rule adds policy and a contract clause to implement 
Section 579 of Division E of the Consolidated Appropriations Act, 2003 
(Pub. L. 108-7), Section 506 of Division D of the Consolidated 
Appropriations Act, 2004 (Pub. L. 108-199), and Section 506 of Division 
D of the Consolidated Appropriations Act, 2005 (Pub. L. 108-447). These 
statutes require that a bilateral agreement providing for U.S. 
assistance to a foreign country must specify that the U.S. assistance 
shall be exempt from taxation by the foreign government. Therefore, the 
foreign government is prohibited from imposing taxes on commodities 
acquired under contracts funded by such U.S. assistance. The interim 
rule addresses the responsibilities of the contractor and the 
contracting officer regarding the prohibition.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    This interim rule is not expected 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 
administrative notification requirements of the rule are expected to 
affect less than 10 contracts per year. Therefore, DoD has not 
performed an initial regulatory flexibility analysis. DoD invites 
comments from small businesses and other interested parties. DoD also 
will consider comments from small entities concerning the affected 
DFARS subparts in accordance with 5 U.S.C. 610. Such comments should be 
submitted separately and should cite DFARS Case 2004-D012.

C. Paperwork Reduction Act

    The information collection requirements of the rule do not reach 
the threshold for requiring Office of Management and Budget approval 
under 44 U.S.C. 3501, et seq.

D. Determination to Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense that urgent and compelling reasons exist to publish an 
interim rule prior to affording the public an opportunity to comment. 
This interim rule implements Section 579 of Division E of the 
Consolidated Appropriations Act, 2003 (Pub. L. 108-7), Section 506 of 
Division D of the Consolidated Appropriations Act, 2004 (Pub. L. 108-
199), and Section 506 of Division D of the Consolidated Appropriations 
Act, 2005 (Pub. L. 108-447). These statutes prohibit a government of a 
foreign country from imposing taxes on the United States under 
contracts funded by U.S. assistance provided to that country. The rule 
is needed for effective implementation of the statutory prohibition, as 
it addresses requirements for prompt notification to the appropriate 
parties if a foreign government imposes such taxes, so that corrective 
action can be taken. Comments received in response to this interim rule 
will be considered in the formation of the final rule.

List of Subjects in 48 CFR part 225, 229, and 252

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

0
Therefore, 48 CFR parts 225, 229, and 252 are amended as follows:

PART 225--FOREIGN ACQUISITION

0
1. The authority citation for 48 CFR parts 225, 229, and 252 continues 
to read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR chapter 1.

0
2. Section 225.7301 is amended by adding paragraph (e) to read as 
follows:


225.7301  General.

* * * * *
    (e) See 229.170 for policy on contracts financed under U.S. 
assistance programs that involve payment of foreign country value added 
taxes or customs duties.

PART 229--TAXES

0
3. Sections 229.170 through 229.170-4 are added to read as follows:


229.170  Reporting of foreign taxation on U.S. assistance programs.


229.170-1  Definition.

    Commodities, as used in this section, means any materials, 
articles, supplies, goods, or equipment.


229.170-2  Policy.

    (a) By law, bilateral agreements with foreign governments must 
include a provision that commodities acquired under contracts funded by 
U.S. assistance programs shall be exempt from taxation by the foreign 
government. If taxes or customs duties nevertheless are imposed, the 
foreign government must reimburse the amount of such taxes to the U.S. 
Government (Section 579 of Division E of the Consolidated 
Appropriations Act, 2003 (Pub. L. 108-7), as amended by Section 506 of 
Division D of the Consolidated Appropriations Act, 2004 (Pub. L. 108-
199), and similar sections in subsequent acts).
    (b) This foreign tax exemption--
    (1) Applies to a contract or subcontract for commodities when--
    (i) The funds are appropriated by the annual foreign operations 
appropriations act; and
    (ii) The value of the contract or subcontract is $500 or more;
    (2) Does not apply to the acquisition of services;
    (3) Generally is implemented through letters of offer and 
acceptance, other country-to-country agreements, or Federal interagency 
agreements; and
    (4) Requires reporting of noncompliance for effective 
implementation.


229.170-3  Reports.

    The contracting officer shall submit a report to the designated 
Security Assistance Office when a foreign government or entity imposes 
tax or customs duties on commodities acquired under contracts or 
subcontracts meeting the criteria of 229.170-2(b)(1). Follow the 
procedures at PGI 229.170-3 for submission of reports.


229.170-4  Contract clause.

    Use the clause at 252.229-7011, Reporting of Foreign Taxes--U.S. 
Assistance Programs, in solicitations and contracts funded with U.S. 
assistance appropriations provided in the annual foreign operations 
appropriations act.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Section 252.229-7011 is added to read as follows:

[[Page 57193]]

252.229-7011  Reporting of Foreign Taxes--U.S. Assistance Programs.

    As prescribed in 229.170-4, use the following clause:

Reporting of Foreign Taxes--U.S. Assistance Programs (SEP 2005)

    (a) Definition. Commodities, as used in this clause, means any 
materials, articles, supplies, goods, or equipment.
    (b) Commodities acquired under this contract shall be exempt 
from all value added taxes and customs duties imposed by the 
recipient country. This exemption is in addition to any other tax 
exemption provided through separate agreements or other means.
    (c) The Contractor shall inform the foreign government of the 
tax exemption, as documented in the Letter of Offer and Acceptance, 
country-to-country agreement, or interagency agreement.
    (d) If the foreign government or entity nevertheless imposes 
taxes, the Contractor shall promptly notify the Contracting Officer 
and shall provide documentation showing that the foreign government 
was apprised of the tax exemption in accordance with paragraph (c) 
of this clause.
    (e) The Contractor shall insert the substance of this clause, 
including this paragraph (e), in all subcontracts for commodities 
that exceed $500.

(End of clause)

[FR Doc. 05-19463 Filed 9-29-05; 8:45 am]

BILLING CODE 5001-08-P