Taxes-Foreign Fixed-Price Contracts
Contractors performing fixed-price work outside the U.S. must include all applicable foreign taxes in their pricing, actively seek exemptions or refunds, and promptly notify the Contracting Officer of any tax changes affecting contract costs.
Overview
FAR 52.229-6, Taxes-Foreign Fixed-Price Contracts, governs the treatment of taxes and duties for U.S. government contracts performed outside the United States and its outlying areas under fixed-price arrangements. This clause replaces standard domestic tax clauses and defines key terms such as after-imposed tax, after-relieved tax, and excepted tax. It establishes that, unless otherwise specified, the contract price includes all applicable foreign taxes and duties except those specifically exempted by agreement between the U.S. and the host country. The clause details when contract price adjustments are allowed for new or relieved taxes, sets a $250 minimum threshold for adjustments, and prohibits inclusion or reimbursement of taxes imposed under 26 U.S.C. 5000C. Contractors must actively seek exemptions or refunds where possible, notify the Contracting Officer of tax-related changes, and follow all instructions regarding tax matters. Failure to comply or negligence may result in price reductions or denial of adjustments.
Key Rules
- Applicability
- Applies to fixed-price contracts for supplies or services performed outside the U.S. and its outlying areas.
- Inclusion of Taxes in Price
- Contract price includes all applicable foreign taxes and duties unless specifically exempted.
- Exclusion of 26 U.S.C. 5000C Taxes
- Taxes under 26 U.S.C. 5000C cannot be included in the contract price or reimbursed.
- Price Adjustments for Tax Changes
- Contract price may be adjusted for after-imposed or after-relieved taxes, subject to conditions and a $250 minimum.
- Contractor Obligations
- Contractors must seek exemptions/refunds, notify the Contracting Officer of tax issues, and comply with all instructions.
Responsibilities
- Contracting Officers: Ensure the clause is included, review contractor notifications, direct contractor actions on tax matters, and approve equitable adjustments.
- Contractors: Include all applicable taxes in pricing, seek exemptions/refunds, notify the Contracting Officer of tax changes, and comply with instructions.
- Agencies: Oversee compliance, ensure proper contract administration, and maintain records of tax adjustments.
Practical Implications
- This clause ensures clarity and fairness in handling foreign taxes for overseas contracts, preventing double taxation or unanticipated costs. Contractors must be diligent in managing tax obligations, seeking exemptions, and communicating with the government. Common pitfalls include failing to notify the Contracting Officer of tax changes, not pursuing available exemptions, or incorrectly including prohibited taxes in pricing.