52.229-11 Tax on Certain Foreign Procurements—Notice and Representation
Source: FAR 52.229-11 on acquisition.gov
Foreign offerors must disclose their status and submit IRS Form W-14 to claim exemption from the 2% excise tax on certain federal procurement payments, or risk full withholding.
Overview
FAR 52.229-11 requires offerors to disclose whether they are foreign persons and, if so, to address the 2% excise tax imposed on certain federal procurement payments to foreign entities under 26 U.S.C. 5000C. The provision mandates that foreign offerors submit IRS Form W-14 to claim any exemption or reduced rate from this tax, and clarifies that tax disputes are handled by the IRS, not through contract administration. The clause also outlines definitions, exemption procedures, and the consequences of failing to submit required documentation.
Key Rules
- Disclosure of Foreign Status
- Offerors must represent whether they are a foreign person as defined by the regulation.
- 2% Excise Tax on Foreign Payments
- A 2% tax applies to specified federal procurement payments to foreign persons unless an exemption is claimed and substantiated.
- Exemption Process
- Foreign offerors may claim exemptions or reduced rates using IRS Form W-14, which must be submitted with the offer.
- Contract Clause Inclusion
- If the offeror is a foreign person, FAR 52.229-12 will be included in the contract, and withholding will be based on the submitted documentation.
- IRS Jurisdiction
- All disputes and audits regarding the tax are handled by the IRS, not the contracting agency.
Responsibilities
- Contracting Officers: Ensure the provision is included in solicitations, verify receipt of IRS Form W-14, and apply withholding as required.
- Contractors: Accurately represent foreign status, submit IRS Form W-14 if claiming exemption, and understand tax implications.
- Agencies: Withhold the 2% tax unless proper exemption documentation is provided; refer tax disputes to the IRS.
Practical Implications
- This provision ensures compliance with federal tax law on foreign procurements and prevents improper payments. Contractors must be diligent in their representations and timely in submitting IRS Form W-14 to avoid unnecessary withholding. Failure to comply can result in automatic tax withholding and potential audit by the IRS.
As prescribed in 29.402-3(a), insert the following provision:
Tax on Certain Foreign Procurements—Notice and Representation (Jun 2020)
(a) Definitions. As used in this provision—
Foreign person means any person other than a United States person.
Specified Federal procurement payment means any payment made pursuant to a contract with a foreign contracting party that is for goods, manufactured or produced, or services provided in a foreign country that is not a party to an international procurement agreement with the United States. For purposes of the prior sentence, a foreign country does not include an outlying area.
United States person as defined in https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section7701&num=0&edition=prelim" target="_blank">26 U.S.C. 7701(a)(30) means
(1) A citizen or resident of the United States;
(2) A domestic partnership;
(3) A domestic corporation;
(4) Any estate (other than a foreign estate, within the meaning of https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section701&num=0&edition=prelim" target="_blank">26 U.S.C. 701(a)(31)); and
(5) Any trust if–
(i) A court within the United States is able to exercise primary supervision over the administration of the trust; and
(ii) One or more United States persons have the authority to control all substantial decisions of the trust.
(b) Unless exempted, there is a 2 percent tax of the amount of a specified Federal procurement payment on any foreign person receiving such payment. See https://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.
(c) Exemptions from withholding under this provision are described at 26 CFR 1.5000C-1(d)(5) through (7). The Offeror would claim an exemption from the withholding by using the Department of the Treasury Internal Revenue Service Form W-14, Certificate of Foreign Contracting Party Receiving Federal Procurement Payments, available via the internet at https://www.irs.gov/w14" target="_blank">www.irs.gov/w14. 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 http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section5000C&num=0&edition=prelim" target="_blank">26 U.S.C. 5000C tax are adjudicated by the IRS as the https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section5000C&num=0&edition=prelim" target="_blank">26 U.S.C. 5000C tax is a tax matter, not a contract issue. The IRS Form W-14 is provided to the acquiring agency rather than to the IRS.
(d) For purposes of withholding under https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section5000C&num=0&edition=prelim" target="_blank">26 U.S.C. 5000C, the Offeror represents that
(1) It □ is □ is not a foreign person; and
(2) If the Offeror indicates "is" in paragraph (d)(1) of this provision, then the Offeror represents that—I am claiming on the IRS Form W-14 □ a full exemption, or □ partial or no exemption [Offeror shall select one] from the excise tax.
(e) If the Offeror represents it is a foreign person in paragraph (d)(1) of this provision, then—
(1) The clause at FAR 52.229-12, Tax on Certain Foreign Procurements, will be included in any resulting contract; and
(2) The Offeror shall submit with its offer the IRS Form W-14. If the IRS Form W-14 is not submitted with the offer, exemptions will not be applied to any resulting contract and the Government will withhold a full 2 percent of each payment.
(f) If the Offeror selects "is" in paragraph (d)(1) and "partial or no exemption" in paragraph (d)(2) of this provision, the Offeror will be subject to withholding in accordance with the clause at FAR 52.229-12, Tax on Certain Foreign Procurements, in any resulting contract.
(g) A taxpayer may, for a fee, seek advice from the Internal Revenue Service (IRS) as to the proper tax treatment of a transaction. This is called a private letter ruling. Also, the IRS may publish a revenue ruling, which is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties, and regulations. A revenue ruling is the conclusion of the IRS on how the law is applied to a specific set of facts. For questions relating to the interpretation of the IRS regulations go to https://www.irs.gov/help/tax-law-questions" target="_blank">https://www.irs.gov/help/tax-law-questions.
(End of provision)