52.229-12 Tax on Certain Foreign Procurements
Source: FAR 52.229-12 on acquisition.gov
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.
As prescribed in 29.402-3(b), insert the following clause:
Tax on Certain Foreign Procurements—Notice and Representation (Feb 2021)
(a) Definitions. As used in this clause—
Foreign person means any person other than a United States person.
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-section7701&num=0&edition=prelim" target="_blank">26 U.S.C. 7701(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) This clause applies only to foreign persons. It implements 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)
(1) If the Contractor is a foreign person and has only a partial or no exemption to the withholding, the Contractor shall include the Department of the Treasury Internal Revenue Service Form W-14, Certificate of Foreign Contracting Party Receiving Federal Procurement Payments, with each voucher or invoice submitted under this contract throughout the period in which this status is applicable. The excise tax withholding is applied at the payment level, not at the contract level. The Contractor should revise each IRS Form W-14 submission to reflect the exemption (if any) that applies to that particular invoice, such as a different exemption applying. 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 and its separate instructions is available via the internet at https://www.irs.gov/w14" target="_blank">www.irs.gov/w14.
(2) If the Contractor is a foreign person and has indicated in its offer in the provision 52.229-11, Tax on Certain Foreign Procurements—Notice and Representation, that it is fully exempt from the withholding, and certified the full exemption on the IRS Form W-14, and if that full exemption no longer applies due to a change in circumstances during the performance of the contract that causes the Contractor to become subject to the withholding for the 2 percent excise tax then the Contractor shall–
(i) Notify the Contracting Officer within 30 days of a change in circumstances that causes the Contractor to be subject to the excise tax 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; and
(ii) Comply with paragraph (c)(1) of this clause.
(d) The Government will withhold a full 2 percent of each payment unless the Contractor claims an exemption. If the Contractor enters a ratio in Line 12 of the IRS Form W-14, the result of Line 11 divided by Line 10, the Government will withhold from each payment an amount equal to 2 percent multiplied by the contract ratio. If the Contractor marks box 9 of the IRS Form W-14 (rather than completes Lines 10 through 12), the Contractor must identify and enter the specific exempt and nonexempt amounts in Line 15 of the IRS Form W-14; the Government will then withhold 2 percent only from the nonexempt amount. See the IRS Form W-14 and its instructions.
(e) Exemptions from the withholding under this clause are described at 26 CFR 1.5000C-1(d)(5) through (7). 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 https://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.
(f) Taxes imposed under https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section5000C&num=0&edition=prelim" target="_blank">26 U.S.C. 5000C may not be—
(1) Included in the contract price; nor
(2) Reimbursed.
(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 clause)