An inverted domestic corporation is one that used to be incorporated in the United States, or used to be a partnership in the United States, but now is incorporated in a foreign country, or is a subsidiary whose parent corporation is incorporated in a foreign (see FAR 9.108-1).
The purpose of the statute and regulation is to help keep Government work here in the U.S. rather than have it sent offshore. Respondents to the proposed rule were overwhelmingly supportive of the restriction. Several respondents stated that when millions of people in the US are unemployed or under-employed, corporation that have "turned their back" on the US and eliminated jobs for American personnel should not receive Government contracts. Many respondents had an income tax angle. They contend that companies should not be rewarded for tax avoidance, which enables them to compete unfairly with U.S. companies.
The FAR councils acknowledged that there may be certain situations where there is no alternative but to purchase or contract with an inverted domestic corporation so they made a provision for this. The regulations allow for a waiver of the prohibition, if an agency head determines in writing that the waiver is required in the interest of national security, documents the determination, and reports it to Congress.
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