52.209-10 Prohibition on Contracting with Inverted Domestic Corporations
Source: FAR 52.209-10 on acquisition.gov
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.
As prescribed in 9.108-5(b), insert the following clause:
Prohibition on Contracting with Inverted Domestic Corporations (Nov 2015)
(a) Definitions. As used in this clause-
Inverted domestic corporation means a foreign incorporated entity that meets the definition of an inverted domestic corporation under http://uscode.house.gov/" target="_blank">6 U.S.C. 395(b), applied in accordance with the rules and definitions of http://uscode.house.gov/" target="_blank">6 U.S.C. 395(c).
Subsidiary means an entity in which more than 50 percent of the entity is owned-
(1) Directly by a parent corporation; or
(2) Through another subsidiary of a parent corporation.
(b) If the contractor reorganizes as an inverted domestic corporation or becomes a subsidiary of an inverted domestic corporation at any time during the period of performance of this contract, the Government may be prohibited from paying for Contractor activities performed after the date when it becomes an inverted domestic corporation or subsidiary. The Government may seek any available remedies in the event the Contractor fails to perform in accordance with the terms and conditions of the contract as a result of Government action under this clause.
(c) Exceptions to this prohibition are located at 9.108-2.
(d) In the event the Contractor becomes either an inverted domestic corporation, or a subsidiary of an inverted domestic corporation during contract performance, the Contractor shall give written notice to the Contracting Officer within five business days from the date of the inversion event.
(End of clause)