52.229-8 Taxes-Foreign Cost-Reimbursement Contracts
Source: FAR 52.229-8 on acquisition.gov
Contractors must not charge exempt foreign taxes to the contract and must return any U.S. tax benefits from reimbursed foreign taxes to the government.
Overview
FAR 52.229-8 addresses the treatment of foreign taxes and duties in cost-reimbursement contracts performed outside the United States. The clause ensures that costs for taxes or duties from which the U.S. Government, contractor, or subcontractor is exempt—either by international agreement or local law—are not allowable and cannot be charged to the contract. Additionally, if a contractor or subcontractor receives a foreign tax credit that reduces its U.S. federal income tax liability due to reimbursed foreign taxes or duties, the resulting benefit must be credited or paid back to the U.S. Government as directed by the Contracting Officer.
Key Rules
- Exemption from Foreign Taxes or Duties
- Costs for taxes or duties from which the U.S. Government, contractor, or subcontractor is exempt are not allowable under the contract.
- Foreign Tax Credits
- If a contractor or subcontractor receives a foreign tax credit that reduces its U.S. federal income tax liability due to reimbursed foreign taxes, the benefit must be credited or paid to the U.S. Government.
Responsibilities
- Contracting Officers: Ensure the clause is included in applicable contracts and monitor compliance with tax exemption and credit requirements.
- Contractors: Identify and exclude non-allowable foreign taxes from contract costs; report and remit any foreign tax credit benefits to the U.S. Government.
- Agencies: Oversee contractor compliance and ensure proper handling of foreign tax credits and exemptions.
Practical Implications
- This clause prevents double benefit or improper charging of foreign taxes to the U.S. Government.
- Contractors must carefully track tax exemptions and credits, and coordinate with the Contracting Officer regarding any tax credit offsets.
- Common pitfalls include failing to exclude exempt taxes from costs or not properly crediting tax benefits back to the government.
As prescribed in 29.402-2(a), insert the following clause:
Taxes-Foreign Cost-Reimbursement Contracts (Mar 1990)
(a) Any tax or duty from which the United States Government is exempt by agreement with the Government of ______ [insert name of the foreign government], or from which the Contractor or any subcontractor under this contract is exempt under the laws of ______ [insert name of country], shall not constitute an allowable cost under this contract.
(b) If the Contractor or subcontractor under this contract obtains a foreign tax credit that reduces its Federal income tax liability under the United States Internal Revenue Code (Title26, U.S. Code) because of the payment of any tax or duty that was reimbursed under this contract, the amount of the reduction shall be paid or credited at the time of such offset to the Government of the United States as the Contracting Officer directs.
(End of clause)