[Federal Register Volume 87, Number 120 (Thursday, June 23, 2022)]
[Proposed Rules]
[Pages 37473-37476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13370]


-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 213, 229, 232, and 252

[Docket DARS-2022-0014]
RIN 0750-AL51


Defense Federal Acquisition Regulation Supplement: Reporting Tax 
Information on Certain Foreign Procurements (DFARS Case 2021-D029)

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to allow for the efficient and accurate 
identification of contracts subject to excise tax withholding. DoD is 
also proposing to prohibit use of the Governmentwide commercial 
purchase card as a method of payment when the tax on certain foreign 
procurements applies. These changes will promote the efficient 
administration of the excise tax.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before August 22, 2022, to be considered 
in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2021-D029, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: https://www.regulations.gov. 
Search for ``DFARS Case 2021-D029'' in the search box and select 
``Search.'' Select ``Comment'' and follow the instructions to submit a 
comment. Please include your name, company name (if any), and ``DFARS 
Case 2021-D029'' on any attached document.
    [cir] Email: [email protected]. Include DFARS Case 2021-D029 in 
the subject line of the message.
    Comments received generally will be posted without change to 
https://www.regulations.gov, including any personal information 
provided. To confirm receipt of your comment(s), please check https://www.regulations.gov, approximately two to three days after submission 
to verify posting.

FOR FURTHER INFORMATION CONTACT: David E. Johnson, telephone 202-913-
5764.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD is proposing to revise the DFARS to allow for the accurate 
identification of contracts subject to excise tax withholding, as well 
as the proper identification of those contracts for which the 
contractor claimed a full exemption from the tax. Section 301 of the 
James Zadroga 9/11 Health and Compensation Act of 2010 (Pub. L. 111-
347), codified at 26 U.S.C. 5000C, imposes a two-percent excise tax on 
specified Federal procurement payments to certain foreign persons; it 
does not apply to payments to United States persons. With certain 
exceptions, to administer this tax DoD must withhold an amount equal to 
two percent of the amount of specified Federal procurement payments.
    Federal Acquisition Regulation (FAR) solicitation provision 52.229-
11, Tax on Certain Foreign Procurements--Notice and Representation, 
provides offerors an opportunity to claim a full exemption from the tax 
at the time of their offer. The proposed DFARS contract clause 252.229-
70XX, Full Exemption from Two-Percent Excise Tax on Certain Foreign 
Procurements, is needed because presently no guidance, requirement, or 
mechanism exists to document an offeror's claim of full exemption from 
the tax.
    Currently, the contract clause at FAR 52.229-12, Tax on Certain 
Foreign

[[Page 37474]]

Procurements, requires the DoD payment office to withhold the two-
percent excise tax if the contractor does not submit an Internal 
Revenue Service (IRS) Form W-14, Certificate of Foreign Contracting 
Party Receiving Federal Procurement Payments, with each invoice. 
However, if the contractor claimed a full exemption at the time of its 
offer, then the contractor is not required to submit IRS Form W-14 with 
each invoice. Accordingly, the DoD payment systems and networks may 
erroneously withhold the tax if the contractor's full exemption that 
was claimed at the time of its offer is not documented in the contract. 
Inclusion of the proposed clause at DFARS 252.229-70XX will ensure the 
DoD payment office and other DoD organizations are aware of contractors 
claiming a full exemption at the time of contract award.
    DoD is also proposing to prohibit use of the Governmentwide 
commercial purchase card (GCPC) as a method of payment on contracts 
subject to the two-percent excise tax. When the GCPC is used as a 
method of payment, a third party, i.e., the bank that issued the GCPC, 
and not the DoD payment office, processes the payment to the 
contractor. In this situation, the Government lacks a mechanism to 
withhold the tax prior to the contractor being paid.
    This proposed rule is intended to promote efficient administration 
of the two-percent excise tax. It does not impose a new requirement or 
burden on contractors or the public. Rather, this proposed rule likely 
benefits contractors by minimizing the likelihood of erroneous 
withholding of the two-percent excise tax.

II. Discussion and Analysis

    This proposed rule applies to Federal Government contracts that 
include FAR clause 52.229-12, that are valued over $250,000, and that 
are awarded to foreign persons for goods or services, if the goods are 
manufactured or produced or the services are provided in any country 
that is not a party to an international procurement agreement with the 
United States (see FAR 25.003 for the definitions of ``World Trade 
Organization Government Procurement Agreement (WTO GPA) country'' and 
``Free Trade Agreement country''). FAR 29.402-3(b) requires FAR clause 
52.229-12 to be included in solicitations in which FAR provision 
52.229-11 is included and in the resulting contract when the contractor 
represented that it is a foreign person.
    Paragraph (d)(2) of FAR provision 52.229-11 allows the offeror to 
claim either a ``full exemption'' or a ``partial or no exemption'' from 
the excise tax. However, in accordance with FAR 29.402-3, FAR 52.229-12 
will be included in the resulting contract where the offeror had 
indicated that it is a foreign person, regardless of whether the 
offeror may have claimed a full exemption as part of their offer.
    The DoD finance and accounting systems utilize the presence of 
various FAR clauses in contracts to determine entitlement to payment, 
including required offsets and withholds. However, the presence or 
absence of FAR 52.229-12 in contracts does not in itself allow DoD 
payment systems or networks to determine whether withholding the two-
percent excise tax is correct for a given contract or whether a 
contractor had claimed a full exemption in their initial offer.
    The proposed clause at DFARS 252.229-70XX, by its inclusion in the 
contract, will provide for a simple and efficient method for 
contracting officers to alert the DoD payment systems and networks that 
a contractor claimed a full exemption in its offer, thereby preventing 
erroneous withholding of the two-percent excise tax. This clause would 
also complement FAR 52.229-12 in applicable contracts where FAR 52.229-
12 requires contractors to notify contracting officers of a change in 
circumstances concerning the full exemption during the performance of 
the contract, causing the contractor to be subject to the tax.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold (SAT) and for Commercial Services and Commercial Products, 
Including Commercially Available Off-the-Shelf (COTS) Items

    This rule proposes to create a new DFARS clause 252.229-70XX, Full 
Exemption from Two-Percent Excise Tax on Certain Foreign Procurements, 
to implement section 301 of the James Zadroga 9/11 Health and 
Compensation Act of 2010 (Pub. L. 111-347), codified at 26 U.S.C. 
5000C. The clause at DFARS 252.229-70XX is prescribed at DFARS 229.402-
70(k) for use in contracts that include the clause at FAR 52.229-12, 
Tax on Certain Foreign Procurements, for which the contractor 
represented in its offer that it is a foreign person and is fully 
exempt from the tax for reasons cited on their IRS Form W-14. FAR 
52.229-12 is used when FAR 52.229-11, Tax on Certain Foreign 
Procurements--Notice and Representation, is used; and FAR 52.229-11 
does not apply to acquisitions that do not exceed the simplified 
acquisition threshold. Accordingly, DoD does not intend to apply the 
rule to acquisitions at or below the SAT but does intend to apply the 
rule to the acquisition of commercial services and commercial products, 
including COTS items.

A. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold

    41 U.S.C. 1905 governs the applicability of laws to contracts or 
subcontracts in amounts not greater than the simplified acquisition 
threshold. It is intended to limit the applicability of laws to such 
contracts or subcontracts. 41 U.S.C. 1905 provides that if a provision 
of law contains criminal or civil penalties, or if the Federal 
Acquisition Regulatory Council makes a written determination that it is 
not in the best interest of the Federal Government to exempt contracts 
or subcontracts at or below the SAT, the law will apply to them. The 
Principal Director, Defense Pricing and Contracting (DPC), is the 
appropriate authority to make comparable determinations for regulations 
to be published in the DFARS, which is part of the FAR system of 
regulations. DoD does not intend to make that determination. Therefore, 
this rule will not apply at or below the SAT.

B. Applicability to Contracts for the Acquisition of Commercial 
Services and Commercial Products Including COTS Items

    10 U.S.C. 3452 (previously 10 U.S.C. 2375) exempts contracts and 
subcontracts for the acquisition of commercial products, including COTS 
items, and commercial services from provisions of law enacted after 
October 13, 1994, unless the Under Secretary of Defense for Acquisition 
and Sustainment (USD(A&S)) makes a written determination that it would 
not be in the best interest of DoD to exempt contracts for the 
procurement of commercial products and commercial services from the 
applicability of the provision or contract requirement, except for a 
provision of law that--
     Provides for criminal or civil penalties;
     Requires that certain articles be bought from American 
sources pursuant to 10 U.S.C. 4862 (previously 10 U.S.C. 2533c), or 
that strategic materials critical to national security be bought from 
American sources pursuant to 10 U.S.C. 4863 (previously 10 U.S.C. 
2533b); or
     Specifically refers to 10 U.S.C. 3452 and states that it 
shall apply to contracts and subcontracts for the acquisition of 
commercial products (including COTS items) and commercial services; or

[[Page 37475]]

     USD(A&S) determines in writing that it would not be in the 
best interest of the Government to exempt contracts or subcontracts for 
the acquisition of commercial products or commercial services from the 
applicability of the provision or contract clause requirement.
    Section 301 of the James Zadroga 9/11 Health and Compensation Act 
of 2010 (Pub. L. 111-347), codified at 26 U.S.C. 5000C and implemented 
by this rule, does not impose criminal or civil penalties; does not 
require purchase pursuant to 10 U.S.C. 4862 or 4863; and does not refer 
to 10 U.S.C. 3452. Section 301 will not apply to the acquisition of 
commercial services or commercial products including COTS items unless 
a written determination is made. Due to delegations of authority from 
USD(A&S), the Principal Director, DPC, is the appropriate authority to 
make the written determination. DoD intends to make that determination 
to apply this rule to the acquisition of commercial services and 
commercial products including COTS items, if otherwise applicable.

C. Determination

    The proposed clause at 252.229-70XX is intended to provide a simple 
and efficient way for contracting officers to alert the DoD payment 
systems and networks that a contractor claimed a full exemption from 
the two-percent excise tax in its offer, thereby preventing erroneous 
withholding of the tax. Not applying the clause to contracts for the 
acquisition of commercial services and commercial products, including 
COTS items, would exclude contracts intended to be covered by this 
proposed rule and undermine the overarching purpose of the rule. 
Consequently, DoD plans to apply the proposed rule to contracts for the 
acquisition of commercial services and commercial products, including 
COTS items.

IV. Expected Impact of the Rule

    This proposed rule will promote efficient administration of the 
two-percent excise tax. It imposes no new requirement or burden on 
contractors or the public. Rather, this proposed rule likely benefits 
contractors by minimizing the possibility of erroneous withholding of 
the two-percent excise tax. Additionally, the two-percent excise tax 
applies only to specified Federal procurement payments to certain 
foreign persons; it does not apply to payments to U.S. persons.

V. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993.

VI. Congressional Review Act

    As required by the Congressional Review Act (5 U.S.C. 801-808) 
before an interim or final rule takes effect, DoD will submit a copy of 
the interim or final rule with the form, Submission of Federal Rules 
under the Congressional Review Act, to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States. A 
major rule under the Congressional Review Act cannot take effect until 
60 days after it is published in the Federal Register. This rule is not 
anticipated to be a major rule under 5 U.S.C. 804.

VII. Regulatory Flexibility Act

    DoD does not expect this proposed rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because the rule does not implement any requirements with which small 
entities must comply. However, an initial regulatory flexibility 
analysis has been performed and is summarized as follows:
    This proposed rule aids the administration of the two-percent 
excise tax on specified Federal procurement payments to certain foreign 
persons by prescribing inclusion of a new DFARS clause in contracts 
when the tax on certain foreign procurements applies and the contractor 
claimed a full exemption from the tax. Further, this proposed rule 
prohibits use of the Governmentwide commercial purchase card as a 
method of payment when the tax on certain foreign procurements applies 
and the contractor did not claim a full exemption.
    The objective of this proposed rule is to promote efficient 
administration of the two-percent excise tax on specified Federal 
procurement payments to certain foreign persons. The legal basis for 
the rule is 41 U.S.C. 1303 and section 301 of the James Zadroga 9/11 
Health and Compensation Act of 2010 (Pub. L. 111-347), codified at 26 
U.S.C. 5000C.
    The proposed rule applies to Federal Government contracts that 
include the clause at FAR 52.229-12, Tax on Certain Foreign 
Procurements; that are valued over $250,000; and that are awarded to 
foreign persons for goods or services, if the goods are manufactured or 
produced or the services are provided in any country that is not a 
party to an international procurement agreement with the United States 
(see FAR 25.003 for the definitions of ``World Trade Organization 
Government Procurement Agreement (WTO GPA) country'' and ``Free Trade 
Agreement country''). Data for fiscal year 2021 was obtained from the 
Federal Procurement Data System for contract awards reflecting these 
criteria. There were 123 total contract awards; 117 were awarded to 56 
unique large entities and 6 were awarded to 4 unique small entities for 
a total of 60 unique foreign entities. Accordingly, the proposed rule 
is not expected to have a significant impact on small entities based in 
the United States.
    This rule imposes no reporting, recordkeeping, or other compliance 
requirements. The rule does not duplicate, overlap, or conflict with 
any other Federal rules. There are no known available alternatives to 
the proposed rule to accomplish the desired objective.
    DoD invites comments from small business concerns and other 
interested parties on the expected impact of this rule on small 
entities.
    DoD will also consider comments from small entities concerning the 
existing regulations in subparts affected by this rule in accordance 
with 5 U.S.C. 610. Interested parties must submit such comments 
separately and should cite 5 U.S.C. 610 (DFARS Case 2021-D029), in 
correspondence.

VIII. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. chapter 35) applies to this 
rule. However, these changes to the DFARS do not impose additional 
information collection requirements to the paperwork burden previously 
approved under OMB Control Number 1545-2263, entitled Tax on Certain 
Foreign Procurement.

List of Subjects in 48 CFR Parts 213, 229, 232, and 252

    Government procurement.

Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 213, 229, 232, and 252 are proposed to be 
amended as follows:

[[Page 37476]]


0
1. The authority citation for parts 213, 229, 232, and 252 continues to 
read as follows:

    Authority:  41 U.S.C. 1303 and 48 CFR chapter 1.

PART 213--SIMPLIFIED ACQUISITION PROCEDURES

0
2. Amend section 213.301 by redesignating paragraph (4) as paragraph 
(5) and adding a new paragraph (4) to read as follows:


213.301   Governmentwide commercial purchase card.

* * * * *
    (4) The contracting officer shall not authorize the Governmentwide 
commercial purchase card as a method of payment during any contract 
period of performance if the contract includes the clause at FAR 
52.229-12, Tax on Certain Foreign Procurements, unless the contract 
also includes the clause at 252.229-70XX, Full Exemption from Two-
Percent Excise Tax on Certain Foreign Procurements, indicating that the 
contractor is fully exempt from the tax.
* * * * *

PART 229--TAXES

0
3. Add subpart 229.2, consisting of section 229.204, to read as 
follows:

SUBPART 229.2--FEDERAL EXCISE TAXES


229.204   Federal excise tax on specific foreign contract payments.

    The contracting officer shall not authorize the Governmentwide 
commercial purchase card as a method of payment during any contract 
period of performance if the contract includes the clause at FAR 
52.229-12, Tax on Certain Foreign Procurements, unless the contract 
also includes the clause at 252.229-70XX, Full Exemption from Two-
Percent Excise Tax on Certain Foreign Procurements, indicating that the 
contractor is fully exempt from the tax.
0
4. Amend section 229.402-70 by adding paragraph (k) to read as follows:


229.402-70   Additional provisions and clauses.

* * * * *
    (k) Use the clause at 252.229-70XX, Full Exemption from Two-Percent 
Excise Tax on Certain Foreign Procurements, in contracts that include 
the clause at FAR 52.229-12, Tax on Certain Foreign Procurements, when 
the contractor has--
    (1) Represented that it is a foreign person in response to the 
provision at FAR 52.229-11, Tax on Certain Foreign Procurements--Notice 
and Representation; and
    (2) Indicated that it is fully exempt from the tax for reasons 
cited on their IRS Form W-14, Certificate of Foreign Contracting Party 
Receiving Federal Procurement Payments.

PART 232--CONTRACT FINANCING

0
5. Add sections 232.1108 and 232.1108-70 to subpart 232.11 to read as 
follows:


232.1108   Payment by Governmentwide commercial purchase card.


232.1108-70   Prohibition of Governmentwide commercial purchase card as 
a method of payment when the tax on certain foreign procurements 
applies.

    The contracting officer shall not authorize the Governmentwide 
commercial purchase card as a method of payment during any contract 
period of performance if the contract includes the clause at FAR 
52.229-12, Tax on Certain Foreign Procurements, unless the contract 
also includes the clause at 252.229-70XX, Full Exemption from Two-
Percent Excise Tax on Certain Foreign Procurements, indicating that the 
contractor is fully exempt from the tax.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
6. Add section 252.229-70XX to read as follows:


252.229-70XX   Full Exemption from Two-Percent Excise Tax on Certain 
Foreign Procurements.

    As prescribed in 229.402-70(k), use the following clause: FULL 
EXEMPTION FROM TWO-PERCENT EXCISE TAX ON CERTAIN FOREIGN PROCUREMENTS 
(DATE)

    (a) As the Contractor represented in its offer, any item, 
including any item delivered under subcontract; any service; or any 
combination thereof delivered under this contract is fully exempt 
from the 2-percent excise tax withholding imposed by 26 U.S.C. 5000C 
and implemented by Federal Acquisition Regulation (FAR) 52.229-12, 
Tax on Certain Foreign Procurements.
    (b) If the full exemption no longer applies due to a change in 
circumstances during the performance of the contract, causing the 
Contractor to become subject to the withholding for the 2-percent 
excise tax as imposed by 26 U.S.C. 5000C, then the Contractor shall 
immediately comply with the notification and billing requirements of 
FAR clause 52.229-12.


(End of clause)

[FR Doc. 2022-13370 Filed 6-22-22; 8:45 am]
BILLING CODE 5001-06-P