52.229-7 Taxes-Fixed-Price Contracts with Foreign Governments
Source: FAR 52.229-7 on acquisition.gov
Contractors must ensure that fixed-price contract prices with foreign governments exclude taxes and duties exempted by international agreements or local law, and promptly adjust prices if exemptions are granted after award.
Overview
FAR 52.229-7 addresses the treatment of taxes and duties in fixed-price contracts performed with foreign governments. The clause ensures that the contract price does not include taxes or duties that are exempted by agreement between the U.S. Government and the foreign government, or that are not applicable under the foreign country's laws. It also prohibits the inclusion of taxes imposed under 26 U.S.C. 5000C. If any such taxes or duties are mistakenly included in the contract price, the price must be reduced. Additionally, if a new exemption is agreed upon after contract award, the contract price must be adjusted downward. However, no adjustment is required unless the amount exceeds $250.
Key Rules
- Exclusion of Certain Taxes and Duties
- Contract prices must not include taxes or duties exempted by U.S.-foreign government agreements or not applicable under local law.
- Prohibition on 26 U.S.C. 5000C Taxes
- Taxes under 26 U.S.C. 5000C cannot be included in the contract price.
- Post-Award Tax Exemptions
- If a new exemption is agreed upon after contract award, the contract price must be reduced accordingly.
- Minimum Adjustment Threshold
- No price adjustment is required unless the adjustment exceeds $250.
Responsibilities
- Contracting Officers: Ensure the clause is included in applicable contracts, verify contract prices exclude inapplicable taxes, and process price adjustments as needed.
- Contractors: Exclude non-applicable taxes from pricing, notify the contracting officer of any included taxes, and adjust invoices/pricing if exemptions are granted post-award.
- Agencies: Oversee compliance and ensure proper contract administration regarding tax matters.
Practical Implications
- This clause prevents the U.S. Government from paying unnecessary foreign taxes, ensuring compliance with international agreements and local laws. Contractors must carefully review tax applicability and remain vigilant for changes in tax status during contract performance. Common pitfalls include mistakenly including exempt taxes in pricing or failing to adjust prices when exemptions are granted after award.
As prescribed in 29.402-1(b), insert the following clause:
Taxes-Fixed-Price Contracts with Foreign Governments (Feb 2013)
(a) "Contract date," as used in this clause, means the date set for bid opening or, if this is a negotiated contract or a modification, the effective date of this contract or modification.
(b)
(1) The contract price, including the prices in any subcontracts under this contract, does not include any tax or duty that the Government of the United States and the Government of ______ [insert name of the foreign government] have agreed shall not apply to expenditures made by the United States in ______ [insert name of country], or any tax or duty not applicable to this contract or any subcontracts under this contract, pursuant to the laws of ______ [insert name of country]. If any such tax or duty has been included in the contract price, through error or otherwise, the contract price shall be correspondingly reduced.
(2) Taxes imposed under http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section5000&num=0&edition=prelim" target="_blank">26 U.S.C. 5000 C may not be included in the contract price.
(c) If, after the contract date, the Government of the United States and the Government of ______ [insert name of the foreign government] agree that any tax or duty included in the contract price shall not apply to expenditures by the United States in ________ [insert name of country], the contract price shall be reduced accordingly.
(d) No adjustment shall be made in the contract price under this clause unless the amount of the adjustment exceeds $250.
(End of clause)