52.229-12
Tax on Certain Foreign Procurements
Foreign contractors must submit IRS Form W-14 with each invoice to claim exemption or proper withholding for the 2% excise tax, and notify the Contracting Officer within 30 days if their exemption status changes.
Overview
FAR 52.229-12 establishes requirements for foreign contractors regarding the 2% excise tax imposed by 26 U.S.C. 5000C on certain federal procurement payments to foreign persons. The clause defines key terms, outlines when the tax applies, and details the process for claiming exemptions and submitting required documentation. It mandates the use of IRS Form W-14 with each invoice or voucher when a foreign contractor is not fully exempt, and sets forth notification and compliance obligations if a contractor's exemption status changes during contract performance. The regulation also clarifies that the excise tax cannot be included in the contract price or reimbursed, and provides guidance on seeking IRS rulings for tax questions.
Key Rules
- Applicability to Foreign Persons
- The clause applies only to foreign persons as defined by U.S. tax law, not to U.S. persons.
- IRS Form W-14 Submission
- Foreign contractors must submit IRS Form W-14 with each payment request if not fully exempt, reflecting the applicable exemption for each invoice.
- Default Withholding Rate
- In the absence of a completed Form W-14, the government will withhold 2% of the payment.
- Change in Exemption Status
- Contractors who become subject to the tax after initially claiming exemption must notify the Contracting Officer within 30 days and begin submitting Form W-14.
- Calculation of Withholding
- The amount withheld may be adjusted based on the ratio or exempt/nonexempt amounts indicated on Form W-14.
- Exemption and Audit
- Exemptions are subject to IRS audit, and disputes are handled by the IRS, not the contracting agency.
- No Price Inclusion or Reimbursement
- The excise tax cannot be included in the contract price or reimbursed by the government.
Responsibilities
- Contracting Officers: Ensure inclusion of the clause, verify receipt of Form W-14, and withhold the correct tax amount.
- Contractors: Submit accurate Form W-14s, notify of status changes, and comply with all tax and reporting requirements.
- Agencies: Withhold and remit the correct tax amount, and refer disputes to the IRS.
Practical Implications
- This clause ensures compliance with U.S. tax law for foreign contractors and prevents improper inclusion of excise taxes in contract pricing. Failure to submit Form W-14 or notify of status changes can result in default withholding and potential IRS audit. Contractors must be diligent in tracking exemption status and submitting required documentation with each payment request.