2 percent for our contractor partners 20Oct21.pdf

NOTICE AND

INSTRUCTIONS

REGARDING

THE 2% TAX ON

CERTAIN

FOREIGN

PROCUREMENTS

18 October 2021

INTENT AND DISCLAIMER

The purpose of this publication is twofold:

1) to make USACE’s industry partners aware of the 2% tax imposed on certain foreign contracts pursuant to:

26 U.S.C. 5000C;

26 CFR §1.5000C-1 – 26 CFR §1.5000C-7; and the Federal Acquisition Regulation (FAR) language at FAR 29.204;

and

2) to make USACE’s industry partners aware of the Internal Revenue Service (IRS) Form W-14

– its implications and how to complete it.

This publication should not be construed as direction or contract modification of any kind.

This publication does not constitute tax advice or a representation of your tax liability. Furnishing this letter does not create liability for the U.S. Army Corps of Engineers for any Federal, state, or local taxes applicable to the above-referenced contract or any other contract.

This publication has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Offerors should consult their tax, legal and accounting advisors before executing an IRS Form W-14.

Consult the regulations and citations herein for specific details and for changes on a regular basis.

United States Code (U.S.C.):

• The statute (26 U.S.C. 5000C) can be found here: https://www.law.cornell.edu/uscode/text/26/5000C.

Code of Federal Regulations (CFR):

• The implementing regulations at 26 CFR §1.5000C-1 – 26 CFR §1.5000C-7 can be found starting here:

https://www.law.cornell.edu/cfr/text/26/1.5000C-1.

Federal Acquisition Regulation (FAR):

• The FAR language is here: https://www.acquisition.gov/far/29.204.

• This tax is included in the contract through the inclusion of FAR 52.229-11 (https://www.acquisition.gov/far/52.229-11) and FAR 52.229-12

(https://www.acquisition.gov/far/52.229-12) in the solicitation and resultant contract.

Internal Revenue Service (IRS):

• The IRS Form W-14 (https://www.irs.gov/forms-pubs/about-form-w-14) is required if the offeror is a foreign contracting party.

• Additional information about the Section 5000C excise tax on specific foreign contract payments is available at:

https://www.irs.gov/government-entities/excise-tax-on-specified-federal-foreign-procurement-payments

• IRC Section 5000C - Qualified Income Tax Treaty Countries Notice 2015-35 (listing countries with qualified income tax treaties) is available at: https://www.irs.gov/pub/irs-drop/n-15-35.pdf.

2% EXCISE TAX ON CERTAIN FOREIGN PROCUREMENTS

- RESOURCES

https://www.law.cornell.edu/uscode/text/26/5000C https://www.law.cornell.edu/cfr/text/26/1.5000C-1 https://www.acquisition.gov/far/29.204 https://www.acquisition.gov/far/52.229-11 https://www.acquisition.gov/far/52.229-12 https://www.irs.gov/forms-pubs/about-form-w-14 https://www.irs.gov/government-entities/excise-tax-on-specified-federal-foreign-procurement-payments https://www.irs.gov/pub/irs-drop/n-15-35.pdf

1. USACE will determine during acquisition planning if the 2% Tax requirement is applicable to the acquisition.

2. Pursuant to FAR 29.402-3 Tax on certain foreign procurements, the requirement will not appear in:

A. Acquisitions using simplified acquisition procedures that do not exceed the simplified acquisition threshold (as defined in 2.101).

B. Emergency acquisitions using the emergency acquisition flexibilities defined in part 18.

C. Acquisitions using the unusual and compelling urgency authority per 6.303-2.

D. Contracts with a single individual for personal services that will not exceed the simplified acquisition threshold on an annual calendar year basis for all years of the contract.

E. Acquisitions if the requiring activity identifies that the requirement is for certain foreign humanitarian assistance contracts.

3. The requirement will appear in all other solicitations, regardless of geographic place of performance.

4. If the acquisition is subject to the 2% tax, the solicitation will contain:

A. FAR 52.229-11 Tax on Certain Foreign Procurements—Notice and Representation; and B. FAR 52.229-12 Tax on Certain Foreign Procurements.

5. ALL offerors, regardless of country of incorporation, are required to complete the representations and certifications at FAR 52.229-11 and identify if the offeror is (or is not) a foreign person.

6. If the offeror is a foreign person, it is required to include an IRS Form W-14 with its proposal.

7. If the awardee is a foreign person, the resultant contract will contain FAR 52.229-12 Tax on Certain Foreign Procurements.

2% PROCESS

29.204 Federal excise tax on specific foreign contract payments.

(a) Title 26 U.S.C. 5000C and its implementing regulations at 26 CFR 1.5000C-1 through 1.5000C-7 require acquiring agencies to collect this excise tax via withholding on applicable contract payments (see 29.402-3, 31.205-41(b)(8)). Agencies merely withhold the tax (section 5000C tax) for the Internal Revenue Service (IRS). All substantive issues regarding the underlying section 5000C tax, e.g., the imposition of, and exemption from the tax, are matters under the jurisdiction of the IRS. The contracting officer will refer all questions relating to the interpretation of the IRS regulations to https://www.irs.gov/help/tax-law-questions.

(b) In accordance with the clause 52.229-12, Tax on Certain Foreign Procurements, contractors that are subject to the section 5000C tax will complete IRS Form W-14, Certificate of Foreign Contracting Party Receiving Federal Procurement Payments, and submit this form with each voucher or invoice. In the absence of a completed IRS Form W-14 accompanying a payment request, the default withholding percentage is 2 percent for the section 5000C withholding for that payment request. Information about IRS Form W-14 is available via the internet at www.irs.gov/w14.

(c) (1) Exemptions from the withholding in the IRS regulations at 26 CFR 1.5000C-1(d)(1) through (4) are captured under the provision prescription at 29.402-3(a) (i.e., the contracting officer will not include the provision when one of the 29.402-3(a) exceptions applies).

(2) The exemptions at 26 CFR 1.5000C-1(d)(5) through (7) must be claimed by the offeror when it submits an IRS Form W-14 with the offer. If not submitted with the offer, exemptions will not be applied to the contract.

(3) Any exemption claimed and self-certified on the IRS Form W-14 is subject to audit by the IRS. Any disputes regarding the imposition and collection of the section 5000C tax are adjudicated by the IRS as the section 5000C tax is a tax matter, not a contract issue.

(d) The exemptions in 29.201 through 29.302 do not apply to this section 5000C tax.

(e) Additional information about this excise tax on specific foreign contract payments is available via the internet at https://www.irs.gov/government-entities/excise-tax-on-specified-federal-foreign-procurement-payments.

FAR 29.204 FEDERAL EXCISE TAX ON SPECIFIC FOREIGN

CONTRACT PAYMENTS.

29.402-3 Tax on certain foreign procurements.

(a) Insert the provision at 52.229-11, Tax on Certain Foreign Procurements—Notice and Representation, in solicitations, including solicitations using FAR part 12 procedures for the acquisition of commercial items, unless one of the following exceptions applies:

(1) Acquisitions using simplified acquisition procedures that do not exceed the simplified acquisition threshold (as defined in 2.101).

(2) Emergency acquisitions using the emergency acquisition flexibilities defined in part 18.

(3) Acquisitions using the unusual and compelling urgency authority per 6.303-2.

(4) Contracts with a single individual for personal services that will not exceed the simplified acquisition threshold on an annual calendar year basis for all years of the contract.

(5) Acquisitions if the requiring activity identifies that the requirement is for certain foreign humanitarian assistance contracts which are payments made by the U.S. Government agencies pursuant to a contract with a foreign contracting party to obtain goods or services described in or authorized under 7 U.S.C. 1691, et seq., 22 U.S.C. 2151, et seq., 22 U.S.C 2601 et seq., 22 U.S.C. 5801 et seq., 22 U.S.C. 5401 et seq., 10 U.S.C. 402, 10 U.S.C. 404, 10 U.S.C. 407, 10 U.S.C. 2557, and 10 U.S.C. 2561.

(b) Insert the clause at 52.229-12, Tax on Certain Foreign Procurements, in—

(1) Solicitations that contain the provision at 52.229-11, Tax on Certain Foreign Procurements—Notice and Representation; and

(2) Resultant contracts in which the contractor has indicated that it was a foreign person in solicitation provision 52.229-11, Tax on Certain Foreign Procurements—Notice and Representation.

FAR 29.402-3 TAX ON CERTAIN FOREIGN PROCUREMENTS.

The IRS Form W-14 shall be submitted by a foreign person with its offer & with each payment request to establish any exemptions to the 2% tax.

*CAUTION*

* Exemptions must be claimed by an offeror at the time it submits its offer; if not submitted with the offer, exemptions will not be applied to the contract and the Government will withhold a full 2% on each payment request.

* If the tax is wholly or partially applicable, failure to submit IRS Form W-14 with each payment request will result in an automatic withholding of 2% from the payment.

PURPOSE OF IRS FORM W-14

A “foreign person” must claim an exemption by indicating in section II and or III of IRS Form W-14 the applicability of:

(1) an international agreement* or (2) an international procurement agreement** to all or a portion of the 2% tax.

HOW CAN A CONTRACTOR CLAIM AN EXEMPTION?

Table of Exemptions to 2% Federal Excise Tax imposed by 26 U.S. Code 5000C - Imposition of tax on certain foreign procurement

Type of Exemption or Relief Dependent On IRS Form W-14 Required?

International Agreement (qualified income tax treaty) Home country of the foreign contracting party. Yes – at contract award and

International Procurement Agreement Country where the goods are produced/manufactured or the services (including construction) are provided.

Yes

Goods produced/manufactured or services (including construction) provided in the United States.

Yes

All others No. Determined by the acquiring U.S.

Government agency

[1] https://www.law.cornell.edu/uscode/text/26/5000C [2] Exemptions can be found at https://www.acquisition.gov/far/29.402-3#FAR_29_402_3 [3] https://www.irs.gov/pub/irs-pdf/fw14.pdf [4] See 26 CFR 1.500C-1(c)(13); 26 CFR 1.500C-1(d)(5); and 26 CFR 1.500C-2(b)(7); and 26 CFR 1.500C-2(d)(2) for more information.

[5] See 26 CFR 1.500C-1(c)(5) for more information.

[6] See 26 CFR 1.500C-1(c)(8); 26 CFR 1.500C-1(d)(7); 26 CFR 1.500C-1(c)(13); 26 CFR 1.500C-2(b)(8); 26 CFR 1.500C-2(d)(3); and FAR 25.400 for more information. Note the Trade Agreement exception applies only to subparts (a)(1) and (2) – those countries that are in the WTO or have specified Free Trade Agreement with the United States. It does not apply to FAR 25.400 subsections (a)(3) and (a)(4).

[7] See 26 CFR 1.500C-1(e) for more information.

[8] See 26 CFR 1.500C-1(d)(6) and 26 CFR 1.500C-2(d)(3) for more information.

https://www.law.cornell.edu/uscode/text/26/5000C https://www.acquisition.gov/far/29.402-3#FAR_29_402_3 https://www.irs.gov/pub/irs-pdf/fw14.pdf

*International Agreement - The following Qualified Income Tax Treaties cover certain nationals of the treaty country and exempts such nationals from this excise tax:

All nationals (individual and corporate) from the following countries are exempt from the 2% tax as a result of an applicable qualified income tax treaty: Austria, Bangladesh, Belgium, Bulgaria, Canada, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Iceland, Italy, Jamaica, Japan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, Portugal, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Turkey, United Kingdom, and Venezuela.

Individual nationals (not corporations) from the following countries are exempt from the 2% tax as a result of an applicable qualified income tax treaty: Cyprus, Israel, Kazakhstan, Russia, and Ukraine.

See https://www.irs.gov/instructions/iw14 for more information.

*Note: the list of countries covered is subject to change at any time. Consult the list regularly for any changes.

WHAT IS AN INTERNATIONAL AGREEMENT

https://www.irs.gov/instructions/iw14

**International Procurement Agreement – International Procurement Agreement means the World Trade Organization Government Procurement Agreement (WTO-GPA) and any free trade agreement to which the U.S. Government is a party.

There are 15 Parties to the WTO-GPA: Armenia, Canada, the European Union (and its 27 Member States -

- Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, and the United Kingdom), Hong Kong China, Iceland, Israel, Japan, the Republic of Korea, Liechtenstein, the Netherlands with respect to Aruba, Norway, Singapore, Switzerland, Taiwan (Chinese Taipei).

In addition, the U.S. Government has free trade agreements with: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Korea (Republic of), Mexico, Morocco, Nicaragua, Panama, Peru, and Singapore.

A comprehensive list of WTO-GPA and Free Trade Agreement countries can be found at FAR 25.400.

*Note: the list of countries covered is subject to change at any time. Consult the list regularly for any changes.

WHAT IS AN INTERNATIONAL PROCUREMENT

AGREEMENT?

52.229-11 Tax on Certain Foreign Procurements—Notice and Representation states in pertinent part:

(d) For purposes of withholding under 26 U.S.C. 5000C, the Offeror represents that

(1) It [_] is [_] is not a foreign person; and

(2) If the Offeror indicates “is” in paragraph (d)(1) of this provision, then the Offeror represents that—I am claiming on the IRS

Form W-14 [__] a full exemption, or [__] partial or no exemption [Offeror shall select one] from the excise tax.

(e) If the Offeror represents it is a foreign person in paragraph (d)(1) of this provision, then—

(1) The clause at FAR 52.229-12, Tax on Certain Foreign Procurements, will be included in any resulting contract; and

(2) The Offeror shall submit with its offer the IRS Form W-14. If the IRS Form W-14 is not submitted with the offer, exemptions will not be applied to any resulting contract and the Government will withhold a full 2 percent of each payment.

(f) If the Offeror selects “is” in paragraph (d)(1) and “partial or no exemption” in paragraph (d)(2) of this provision, the Offeror will be subject to withholding in accordance with the clause at FAR 52.229-12, Tax on Certain Foreign Procurements, in any resulting contract.

CONTRACTOR(S) MUST EXECUTE FAR 52.229-11 AND AN IRS FORM

W-14 WHEN SUBMITTING AN OFFER TO CLAIM EXEMPTIONS

HOW TO FILL OUT IRS FORM W-14

Line 1: enter the name of the foreign contracting party.

Line 3: enter the permanent resident address of the foreign contracting party.

Line 4: enter the mailing address of the foreign contracting party, if different than the address in line 3.

Line 5: enter the foreign contracting party’s taxpayer identification number (TIN), if applicable. If the foreign contracting party is an entity, enter its U.S. employer identification number (EIN), if applicable. If the foreign contracting party is an entity and does not have an EIN, apply for one on IRS Form SS-4, Application for U.S.

Employer Identification Number, I the foreign contracting party is required to obtain a U.S. TIN.

Line 7: enter the name and address of the acquiring agency.

Line 2: if the foreign contracting party is a corporation, enter its country of incorporation. If the foreign contracting party is another type of entity, enter the country under whose laws the foreign contracting party is created, organized, or governed. Do not abbreviate the name of the country.

Line 6: enter the contract number or reference number, if known.

Note: You should consult your own legal, tax, and accounting advisors before claiming exemptions on IRS Form W-14.

Complete Part III by checking the box on Line 9 if the country where the goods are manufactured or produced or services provided are party to an international procurement agreement with the United States (such as the WTO- GPA – see page 9).

Note: the list of countries covered by this exemption is subject to change at any time. Consult the list regularly for changes.

DO NOT check Line 9 unless you are identifying exempt and non-exempt amounts (i.e., partial or no exemption being claimed).

Line 10: enter the total contract price or estimate total contract price.

Line 11: enter nonexempt amount (if applicable).

Line 12: enter contract ratio (line 11 divided by line 10 (if applicable)).

Complete Part II by checking the box on Line 8 if you are claiming relief from the tax pursuant to an International Agreement with the United

States (such as a qualified income tax treaty – see page 8).

Note: the list of countries covered by this exemption is subject to change at any time. Consult the list regularly for changes.

Note: You should consult your own legal, tax, and accounting advisors before claiming exemptions on IRS

If an exemption was claimed in Part II, complete Part IV (Line

13) to provide an explanation for the claimed exemption.

Part II exempts certain nationals pursuant to an international agreement with the United States (such as a qualified income tax treaty – see page 8).

Note: the list of countries covered by this exemption is subject to change at any time.

Consult the list regularly for changes.

Note: You should consult your own legal, tax, and accounting advisors before claiming exemptions on IRS Form W-14.

Sample language for Part IV (if deemed applicable by the contractor): Germany is party to a qualified income tax treaty with the United States which exempts all German nationals from the tax (see instructions for IRS Form W-14 APPENDIX A). We are a business organized in Germany and are exempt from this tax pursuant to the non-discrimination clause in Article 24 of that treaty.

If an exemption was claimed in Part III, complete Part IV (Line 14) to provide an explanation for the claimed exemption.

Part III exempts goods that are manufactured or produced in, or services that are provided by, a party to an international procurement agreement with the United States (such as the WTO-GPA – see page 9).

Note: the list of countries covered by this exemption is subject to change at any time. Consult the list regularly for changes.

Sample language for Part IV (if deemed applicable by the contractor): Japan is a party to a World Trade Organization Government Procurement Agreement (WTO-GPA) with the United States. We are exempt from this tax because the construction services will be provided in Japan.

Note: You should consult your own legal, tax, and accounting advisors before claiming exemptions on IRS

Complete Part IV (Line 15) if you checked Line 9 to provide an explanation for each item identifying specific exempt and nonexempt amounts. *Do not execute unless there is only a partial or no exemption being claimed.

Complete Part V – Authorized representative signature certifying the Form W-14 contents, and their truthfulness.

Note: You should consult your own legal, tax, and accounting advisors before claiming exemptions on IRS Form W-14.

Sample language (if deemed applicable by the contractor):

Explain the method relied upon to allocate the total contract price between exempt and nonexempt amounts.

Go to: https://www.irs.gov/pub/irs-pdf/iw14.pdf for instructions.

https://www.irs.gov/pub/irs-pdf/iw14.pdf

In accordance with the FAR 52.229-11 and FAR 52.229-12:

Any exemption claimed and self-certified on the IRS Form W-14 is subject to audit by the IRS.

Any disputes regarding the imposition and collection of the 26 U.S.C. 5000C tax are adjudicated by the IRS as the 26 U.S.C. 5000C tax is a tax matter, not a contract issue.

A taxpayer may, for a fee, seek advice from the Internal Revenue Service (IRS) as to the proper tax treatment of a transaction. This is called a private letter ruling. Also, the IRS may publish a revenue ruling, which is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties, and regulations. A revenue ruling is the conclusion of the IRS on how the law is applied to a specific set of facts. For questions relating to the interpretation of the IRS regulations go to https://www.irs.gov/help/tax-law-questions.

Failure to coordinate and comply with this tax may result in contractors being indebted to the U.S.

Government. Failure to coordinate and resolve an indebtedness may result in a contractor being found non-responsible (under FAR Part 9) and being determined to be ineligible for future awards.

IF YOU HAVE QUESTIONS ABOUT THE TAX –

CONTACT THE IRS

https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section5000C&num=0&edition=prelim https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section5000C&num=0&edition=prelim https://www.irs.gov/help/tax-law-questions