[Federal Register Volume 87, Number 208 (Friday, October 28, 2022)]
[Rules and Regulations]
[Pages 65515-65518]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23282]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 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: Final rule.

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SUMMARY: DoD is issuing a final rule amending 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 amending the DFARS 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: Effective October 28, 2022.

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

SUPPLEMENTARY INFORMATION:

I. Background

    DoD published a proposed rule in the Federal Register at 87 FR 
37473 on June 23, 2022, to amend the DFARS to promote the efficient 
administration of the two-percent excise tax on specified Federal 
procurement payments to certain foreign persons. 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,

[[Page 65516]]

to administer this tax DoD must withhold an amount equal to two percent 
of the amount of specified Federal procurement payments.
    One respondent submitted a public comment in response to the 
proposed rule.

II. Discussion and Analysis

    DoD reviewed the public comment in the development of the final 
rule. A discussion of the comment is provided, as follows:

A. Summary of Significant Changes From the Proposed Rule

    There are no significant changes made from the proposed rule.

B. Analysis of Public Comments

    Comment: A respondent expressed support for the rule.
    Response: DoD acknowledges the support.

C. Other Changes

    The contract clause at DFARS 252.229-7014, Full Exemption from Two-
Percent Excise Tax on Certain Foreign Procurements, is added to the 
list at DFARS 212.301(f) of clauses that are applicable to commercial 
items.

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 creates a new DFARS clause 252.229-7014, 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 252.229-7014 is prescribed at DFARS 229.402-70(k) for use in 
contracts that include the clause at Federal Acquisition Regulation 
(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 Internal Revenue 
Service (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 
SAT. Accordingly, DoD is not applying the rule to acquisitions at or 
below the SAT but is applying the rule to the acquisition of commercial 
services and commercial products, including COTS items.

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

    10 U.S.C. 2375 (redesignated as 10 U.S.C. 3452) 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. 2533c (redesignated as 10 U.S.C. 4862), 
or that strategic materials critical to national security be bought 
from American sources pursuant to 10 U.S.C. 2533b (redesignated as 10 
U.S.C. 4863); or
     Specifically refers to 10 U.S.C. 2375 and states that it 
shall apply to contracts and subcontracts for the acquisition of 
commercial items (including COTS items) and commercial services; or
     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 items 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. 2533b or 2533c; and does not 
refer to 10 U.S.C. 2375. Section 301 will not apply to the acquisition 
of commercial products including COTS items or to the acquisition of 
commercial services 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 has 
made that determination to apply this rule to the acquisition of 
commercial products including COTS items and to the acquisition of 
commercial services, if otherwise applicable.

B. Determination

    The clause at 252.229-7014 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 rule 
and undermine the overarching purpose of the rule. Consequently, DoD is 
applying the rule to contracts for the acquisition of commercial 
services and commercial products, including COTS items.

IV. 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.

V. 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. The Office of 
Information and Regulatory Affairs has determined that this rule is not 
a major rule as defined by 5 U.S.C. 804.

VI. Regulatory Flexibility Act

    A final regulatory flexibility analysis has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. 
and is summarized as follows:
    This rule is intended to promote efficient administration of the 
two-percent excise tax on specified Federal procurement payments to 
certain foreign persons. The rule prescribes inclusion of a new DFARS 
clause in contracts when the tax on certain foreign procurements 
applies and the contractor claimed a full exemption

[[Page 65517]]

from the tax. In addition, the 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.
    DoD received no comments in response to the initial regulatory 
flexibility analysis.
    The rule applies to Federal Government contracts that include FAR 
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''). Data for fiscal year 2021 was obtained from the 
Federal Procurement Data System for contract awards reflecting these 
criteria. There were 123 total awards; 117 were awarded to 56 unique 
large foreign entities and 6 were awarded to 4 unique small foreign 
entities for a total of 50 unique foreign entities. Accordingly, the 
final rule is not expected to have a significant impact on small 
entities based in the United States.
    This rule imposes no reporting, recordkeeping, and other compliance 
requirements.
    There are no known available alternatives to accomplish the desired 
objective of the statute.

VII. 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, titled Tax on Certain 
Foreign Procurement.

List of Subjects in 48 CFR Parts 212, 213, 229, 232, and 252

    Government procurement.

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

    Therefore, 48 CFR parts 212, 213, 229, 232, and 252 are amended as 
follows:

0
1. The authority citation for 48 CFR parts 212, 213, 229, 232, and 252 
continues to read as follows:

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

PART 212--ACQUISITION OF COMMERCIAL ITEMS

0
2. Amend section 212.301 by--
0
a. Redesignating paragraphs (f)(xiii) through (f)(xix) as paragraphs 
(f)(xiv) through (f)(xx); and
0
b. Adding new paragraph (f)(xiii).
    The addition reads as follows:


212.301   Solicitation provisions and contract clauses for the 
acquisition of commercial items.

* * * * *
    (f) * * *
    (xiii) Part 229--Taxes. Use the clause at 252.229-7014, Full 
Exemption from Two-Percent Excise Tax on Certain Foreign Procurements, 
as prescribed at 229.402-70, to comply with 26 U.S.C. 5000C.
* * * * *

PART 213--SIMPLIFIED ACQUISITION PROCEDURES

0
3. Amend section 213.301 by redesignating paragraph (4) as paragraph 
(5) and adding a new paragraph (4).
    The addition reads 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 252.229-7014, 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
4. 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 252.229-7014, Full Exemption from Two-
Percent Excise Tax on Certain Foreign Procurements, indicating that the 
contractor is fully exempt from the tax.

0
5. 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 252.229-7014, 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
6. 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 252.229-7014, 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
7. Add section 252.229-7014 to read as follows:


252.229-7014   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 (OCT 2022)

    (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

[[Page 65518]]

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. 2022-23282 Filed 10-27-22; 8:45 am]
BILLING CODE 5001-06-P