29.204 Federal excise tax on specific foreign contract payments
Source: FAR 29.204 on acquisition.gov
Foreign contractors must submit IRS Form W-14 with each payment request to claim exemptions or ensure correct withholding, or face a default 2% excise tax on federal contract payments.
Overview
FAR 29.204 addresses the requirements for federal excise tax withholding on certain foreign contract payments, as mandated by 26 U.S.C. 5000C and its implementing regulations. Agencies are required to withhold a 2% excise tax on applicable payments to foreign contractors, acting solely as withholding agents for the IRS. Contractors subject to this tax must submit IRS Form W-14 with each invoice or voucher to claim exemptions or ensure proper withholding. Exemptions must be claimed at the time of offer submission, and any self-certified exemptions are subject to IRS audit. All substantive tax matters, including disputes and interpretations, fall under IRS jurisdiction, not the contracting agency. The section also clarifies that other FAR excise tax exemptions do not apply to this specific tax.
(a) Title http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section5000C&num=0&edition=prelim" target="_blank">26 U.S.C. 5000C and its implementing regulations at 26 CFR 1.5000C-1 through 1.5000C-7 require acquiring agencies to collect this excise tax via withholding on applicable contract payments (see 29.402-3, 31.205-41(b)(8)). Agencies merely withhold the tax (section 5000C tax) for the Internal Revenue Service (IRS). All substantive issues regarding the underlying section 5000C tax, e.g., the imposition of, and exemption from the tax, are matters under the jurisdiction of the IRS. The contracting officer will refer all questions relating to the interpretation of the IRS regulations to https://www.irs.gov/help/tax-law-questions" target="_blank">https://www.irs.gov/help/tax-law-questions.
(b) In accordance with the clause 52.229-12, Tax on Certain Foreign Procurements, contractors that are subject to the section 5000C tax will complete IRS Form W-14, Certificate of Foreign Contracting Party Receiving Federal Procurement Payments, and submit this form with each voucher or invoice. In the absence of a completed IRS Form W-14 accompanying a payment request, the default withholding percentage is 2 percent for the section 5000C withholding for that payment request. Information about IRS Form W-14 is available via the internet at https://www.irs.gov/w14" target="_blank">www.irs.gov/w14.
(c)
(1) Exemptions from the withholding in the IRS regulations at 26 CFR 1.5000C-1(d)(1) through (4) are captured under the provision prescription at 29.402-3(a) (i.e., the contracting officer will not include the provision when one of the 29.402-3(a) exceptions applies).
(2) The exemptions at 26 CFR 1.5000C-1(d)(5) through (7) must be claimed by the offeror when it submits an IRS Form W-14 with the offer. If not submitted with the offer, exemptions will not be applied to the contract.
(3) Any exemption claimed and self-certified on the IRS Form W-14 is subject to audit by the IRS. Any disputes regarding the imposition and collection of the section 5000C tax are adjudicated by the IRS as the section 5000C tax is a tax matter, not a contract issue.
(d) The exemptions in 29.201 through 29.302 do not apply to this section 5000C tax.
(e) Additional information about this excise tax on specific foreign contract payments is available via the internet at https://www.irs.gov/government-entities/excise-tax-on-specified-federal-foreign-procurement-payments" target="_blank">https://www.irs.gov/government-entities/excise-tax-on-specified-federal-foreign-procurement-payments.