52.229-9
Taxes-Cost-Reimbursement Contracts with Foreign Governments
Contractors and subcontractors cannot claim exempt foreign taxes as allowable costs and must remit any U.S. tax benefit from reimbursed foreign taxes to the U.S. Treasury.
Overview
FAR 52.229-9 addresses the treatment of taxes and duties in cost-reimbursement contracts with foreign governments. The clause ensures that the U.S. Government does not pay for taxes or duties from which it or its subcontractors are exempt by agreement or local law. Additionally, it requires subcontractors to remit to the U.S. Treasury any benefit they receive from foreign tax credits related to reimbursed taxes or duties, rather than crediting these amounts to the contract. This clause is inserted into contracts as prescribed by FAR 29.402-2(b).
Key Rules
- Exemption from Taxes and Duties
- Any tax or duty from which the U.S. Government or subcontractors are exempt (by agreement or law) is not an allowable cost under the contract.
- Foreign Tax Credits
- If a subcontractor receives a foreign tax credit that reduces its U.S. Federal income tax liability due to reimbursed taxes or duties, the amount of the reduction must be paid to the U.S. Treasury when the Federal tax return is filed.
Responsibilities
- Contracting Officers: Must include this clause in applicable contracts and ensure compliance.
- Contractors: Must not claim exempt taxes/duties as allowable costs and must ensure subcontractors comply with tax credit remittance requirements.
- Agencies: Oversee contract compliance and ensure proper remittance of foreign tax credits.
Practical Implications
- This clause prevents double benefits (reimbursement and tax credits) for the same taxes/duties.
- Contractors must carefully track tax exemptions and credits to avoid unallowable costs and ensure proper payments to the U.S. Treasury.
- Failure to comply can result in disallowed costs or penalties.