Unallowability of Costs Associated With Foreign Contractor Excise Tax

FAC 2005-65; FAR Case 2011-011

By: Ryan Byrd

This final rule amends FAR 31.205-41, 52.229-3, 52.229-4, 52.229-6, and 52.229-7 to implement certain requirements of section 301 of the James Zadroga 9/11 Health and Compensation Act of 2010 (Pub. L. 111–347), which imposes a 2-percent excise tax on certain federal procurement payments to foreign persons. The law amended the Internal Revenue Code by adding a new section 5000C.

Per the final FAR rule, the costs associated with the excise tax on goods or services are unallowable if the goods or services are produced in a country that is not party to an international procurement agreement with the United States. The statute applies to contracts entered into on or after January 2, 2011, and does not apply if the imposition of the tax would be inconsistent with any international agreement. The tax will be collected in a manner similar to other U.S. taxes withheld on payments to foreign persons.

The Department of Treasury will provide specific guidance regarding the application of the tax and procedures for withholding the tax.

(FAC 2005-65; FAR Case 2011-011)

The views expressed in this article are those of the authors and do not necessarily reflect the position or policy of Berkeley Research Group, LLC.

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