Prohibition on Contracting with Inverted Domestic Corporations
Contractors must not become inverted domestic corporations or subsidiaries during contract performance and must promptly notify the government if such a change occurs, or risk non-payment and other penalties.
Overview
FAR 52.209-10 prohibits the federal government from contracting with inverted domestic corporations or their subsidiaries. An inverted domestic corporation is defined as a foreign-incorporated entity that meets specific criteria under 6 U.S.C. 395. If a contractor reorganizes as, or becomes a subsidiary of, an inverted domestic corporation during contract performance, the government may be barred from making payments for work performed after the inversion. Contractors are required to notify the Contracting Officer in writing within five business days if such a change occurs. Exceptions to this prohibition are outlined in FAR 9.108-2. This clause is intended to prevent federal funds from supporting companies that have moved their corporate registration overseas to avoid U.S. taxes while retaining substantial business operations in the United States.
Key Rules
- Prohibition on Contracting with Inverted Domestic Corporations
- The government cannot contract with, or pay, contractors that become inverted domestic corporations or their subsidiaries during contract performance.
- Notification Requirement
- Contractors must notify the Contracting Officer in writing within five business days if they become an inverted domestic corporation or a subsidiary thereof.
- Remedies for Non-Compliance
- The government may seek remedies if the contractor fails to perform due to actions taken under this clause.
- Exceptions
- Any exceptions to this prohibition are found in FAR 9.108-2.
Responsibilities
- Contracting Officers: Must ensure this clause is included in applicable contracts and monitor for compliance.
- Contractors: Must avoid becoming an inverted domestic corporation or subsidiary during contract performance and promptly notify the Contracting Officer if such a change occurs.
- Agencies: Must enforce the prohibition and may seek remedies for non-compliance.
Practical Implications
- This clause exists to discourage tax avoidance through corporate inversion and to protect federal interests.
- Contractors must monitor their corporate structure and ownership changes throughout contract performance.
- Failure to comply can result in non-payment and other remedies, making timely notification and compliance critical.