Thursday, February 23, 2012

Proposed Amendment to FAR Cost Principle on Taxes

DoD, GSA, and NASA are proposing to amend the Federal Acquisition Regulations (FAR) cost principle on Taxes (FAR 31.205-41) to make the two percent tax levied on foreign persons that receive Federal procurement funds, unallowable under Government contracts.

The Health and Compensation Act of 2010 which became effective on January 2, 2011, imposes a tax on any foreign person (individual, partnership, corporation, or other form of association) that receives a federal procurement payment. This tax is two percent of such payment. In addition, the law stipulates that no funds are to be disbursed to any foreign contractor in order to reimburse the tax imposed.

To implement the law, the FAR Council is proposing to amend FAR 31.205-41 to inform the Government and contractors that the costs of the two percent tax are not allowable. This means that such costs cannot be reimbursed or included in the pricing of any fixed-priced contract.

The law became effective a year ago January and applies irrespective of its inclusion in FAR.

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