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Federal Register / Vol. 81, No. 160 / Thursday, August 18, 2016 / Rules and Regulations
assumption of responsibility, hold harmless,
and indemnification, as set forth in
paragraphs 2(a) and 3(a), respectively, to its
Contractors and Subcontractors by requiring
them to waive and release all claims they
may have against each Customer, the United
States, any Part 440 Customer, and each of
their respective Contractors and
Subcontractors, and to agree to be
responsible, for Property Damage they
sustain and to be responsible, hold harmless
and indemnify each Customer, the United
States, any Part 440 Customer, and each of
their respective Contractors and
Subcontractors, for Bodily Injury or Property
Damage sustained by their own employees,
resulting from Permitted Activities,
regardless of fault.
(b) Each Customer shall extend the
requirements of the waiver and release of
claims, and the assumption of responsibility,
hold harmless, and indemnification, as set
forth in paragraphs 2(b) and 3(a),
respectively, to its customers, Contractors,
and Subcontractors, by requiring them to
waive and release all claims they may have
against Permittee, the United States, any
other customer, and each of their respective
Contractors and Subcontractors, and to agree
to be responsible, for Property Damage they
sustain and to be responsible, hold harmless
and indemnify Permittee, the United States,
any other customer, and each of their
respective Contractors and Subcontractors,
for Bodily Injury or Property Damage
sustained by their own employees, resulting
from Permitted Activities, regardless of fault.
(c) The United States shall extend the
requirements of the waiver and release of
claims, and the assumption of responsibility
as set forth in paragraphs 2(c) and 3(b),
respectively, to its Contractors and
Subcontractors by requiring them to waive
and release all claims they may have against
Permittee, each Customer, any Part 440
Customer, and each of their respective
Contractors and Subcontractors, and to agree
to be responsible, for any Property Damage
they sustain and for any Bodily Injury or
Property Damage sustained by their own
employees, resulting from Permitted
Activities, regardless of fault, to the extent
that claims they would otherwise have for
such damage or injury exceed the amount of
insurance or demonstration of financial
responsibility required under § 440.9(c) and
(e), respectively, of the Regulations.
5. Indemnification
(a) Permittee shall hold harmless and
indemnify each Customer and its directors,
officers, servants, agents, subsidiaries,
employees and assignees, or any of them; the
United States and its agencies, servants,
agents, subsidiaries, employees and
assignees, or any of them; and any Part 440
Customer and its directors, officers, servants,
agents, subsidiaries, employees and
assignees, or any of them, from and against
liability, loss or damage arising out of claims
that Permittee’s Contractors and
Subcontractors may have for Property
Damage sustained by them and for Bodily
Injury or Property Damage sustained by their
employees, resulting from Permitted
Activities and arising out of the indemnifying

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party’s failure to implement properly the
waiver requirement.
(b) Each Customer shall hold harmless and
indemnify Permittee and its directors,
officers, servants, agents, subsidiaries,
employees and assignees, or any of them; the
United States and its agencies, servants,
agents, subsidiaries, employees and
assignees, or any of them; and any other
customer and its directors, officers, servants,
agents, subsidiaries, employees and
assignees, or any of them, from and against
liability, loss or damage arising out of claims
that each Customer’s Contractors,
Subcontractors, and customers, may have for
Property Damage sustained by them and for
Bodily Injury or Property Damage sustained
by their employees, resulting from Permitted
Activities and arising out of the indemnifying
party’s failure to implement properly the
waiver requirement.
6. Assurances Under 51 U.S.C. 50914(e)
Notwithstanding any provision of this
Agreement to the contrary, Permittee shall
hold harmless and indemnify the United
States and its agencies, servants, agents,
employees and assignees, or any of them,
from and against liability, loss or damage
arising out of claims for Bodily Injury or
Property Damage, resulting from Permitted
Activities, regardless of fault, except to the
extent that: (i) As provided in paragraph 7(b)
of this Agreement, claims result from willful
misconduct of the United States or its agents;
(ii) claims for Property Damage sustained by
the United States or its Contractors and
Subcontractors exceed the amount of
insurance or demonstration of financial
responsibility required under § 440.9(e) of
the Regulations; (iii) claims by a Third Party
for Bodily Injury or Property Damage exceed
the amount of insurance or demonstration of
financial responsibility required under
§ 440.9(c) of the Regulations, and do not
exceed $1,500,000,000 (as adjusted for
inflation after January 1, 1989) above such
amount, and are payable pursuant to the
provisions of 51 U.S.C. 50915 and § 440.19 of
the Regulations; or (iv) Licensee has no
liability for claims exceeding $1,500,000,000
(as adjusted for inflation after January 1,
1989) above the amount of insurance or
demonstration of financial responsibility
required under § 440.9(c) of the Regulations.
7. Miscellaneous
(a) Nothing contained herein shall be
construed as a waiver or release by Permittee,
any Customer or the United States of any
claim by an employee of the Permittee, any
Customer or the United States, respectively,
including a member of the Armed Forces of
the United States, for Bodily Injury or
Property Damage, resulting from Permitted
Activities.
(b) Notwithstanding any provision of this
Agreement to the contrary, any waiver,
release, assumption of responsibility or
agreement to hold harmless and indemnify
herein shall not apply to claims for Bodily
Injury or Property Damage resulting from
willful misconduct of any of the Parties, the
Contractors and Subcontractors of any of the
Parties, any Part 440 Customer, the
Contractors and Subcontractors of any Part
440 Customer, and in the case of Permittee,

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55133

each Customer, any Part 440 Customer, and
the Contractors and Subcontractors of each of
them, the directors, officers, agents and
employees of any of the foregoing, and in the
case of the United States, its agents.
(c) References herein to Customer shall
apply to, and be deemed to include, each
such customer severally and not jointly.
(d) This Agreement shall be governed by
and construed in accordance with United
States Federal law.
In witness whereof, the Parties to this
Agreement have caused the Agreement to be
duly executed by their respective duly
authorized representatives as of the date
written above.
Permittee
By: lllllllllllllllllll
Its: lllllllllllllllllll
Customer 1
By: lllllllllllllllllll
Its: lllllllllllllllllll
[Signature lines for each additional
customer]
Federal Aviation Administration of the
Department of Transportation on Behalf of
the United States Government
By: lllllllllllllllllll
Its: lllllllllllllllllll
Issued under authority provided by 49
U.S.C. 106(f), 44701(a), and 44703 in
Washington, DC, on July 25, 2016.
Michael P. Huerta,
Administrator.
[FR Doc. 2016–18765 Filed 8–17–16; 8:45 am]
BILLING CODE 4910–13–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 301, and 602
[TD 9782]
RIN 1545–BK06

Tax on Certain Foreign Procurement
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:

This document contains final
regulations under section 5000C of the
Internal Revenue Code relating to the 2
percent tax on payments made by the
U.S. government to foreign persons
pursuant to certain contracts. The
regulations affect U.S. government
acquiring agencies and foreign persons
providing certain goods or services to
the U.S. government pursuant to a
contract. This document also contains
final regulations under section 6114,
with respect to foreign persons claiming
an exemption from the 2 percent tax
under an income tax treaty.
DATES: Effective Date: These regulations
are effective on August 18, 2016.
SUMMARY:

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Federal Register / Vol. 81, No. 160 / Thursday, August 18, 2016 / Rules and Regulations
Explanation and Summary of
Comments

Applicability Date: For dates of
applicability, see § 1.5000C–7 and
§ 301.6114–1(e)(2).
FOR FURTHER INFORMATION CONTACT:

Kate

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Hwa at (202) 317–6934, and for
questions related to tax treaties and the
regulations under section 6114, Rosy
Lor at (202) 317–6933, (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
On January 2, 2011, section 301 of the
James Zadroga 9/11 Health and
Compensation Act of 2010, Public Law
111–347 (the Act), 124 Stat. 3623, added
section 5000C to the Internal Revenue
Code (Code). Section 5000C(a) imposes
on any foreign person that receives a
specified Federal procurement payment
a tax equal to 2 percent of the amount
such payment. Section 5000C(b) defines
the term specified Federal procurement
payment as any payment made pursuant
to a contract with the Government of the
United States (U.S. government) 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. Section 301(a)(3) of the Act
provides that section 5000C applies to
payments received pursuant to contracts
entered into on and after January 2,
2011. Additionally, section 301(b)(1)(c)
of the Act states that this section must
be applied in a manner consistent with
U.S. obligations under international
agreements. Section 5000C(d)(1)
provides that the amount deducted and
withheld under chapter 3 shall be
increased by the amount of tax imposed
under section 5000C.
On April 22, 2015, the Department of
Treasury (Treasury Department) and the
Internal Revenue Service (IRS)
published in the Federal Register (80
FR 22449) a notice of proposed
rulemaking (REG–103281–11) (NPRM)
under sections 5000C and 6114 (the
proposed regulations). The regulations
set forth a number of exemptions from
the tax and provided procedures for
collecting the tax. Notice 2015–35,
2015–18 I.R.B. 943, issued
contemporaneously with the proposed
regulations, provided a list of income
tax treaties in effect that prevented the
imposition of the tax. No public hearing
was requested or held. Written
comments on the proposed regulations
were received and are available at
www.regulations.gov or upon request.
After consideration of the comments,
the proposed regulations are adopted as
amended by this Treasury decision. The
revisions are discussed below.

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1. Payments by Contracting Parties to
Subcontractors
A commenter asked for clarification
that the proposed regulations apply only
to payments made by the U.S.
government to direct (prime) contractors
with the U.S. government, and not to
payments made by prime contractors
pursuant to subcontracts. Consistent
with the proposed regulations, the final
regulations provide section 5000C
imposes the tax on any foreign
contracting party, which means a
foreign person that is a party to a
contract with the U.S. government that
was entered into on or after January 2,
2011. Therefore, the final regulations do
not generally impose the tax on a
subcontractor that is not party to a
contract with the U.S. government. For
example, if an acquiring agency
contracts with a domestic corporation
(prime contractor) for goods or services,
and the prime contractor separately
contracts with a foreign subcontractor
for goods and services to be provided
under the contract, section 5000C will
not ordinarily apply to payments by the
prime contractor to its foreign
subcontractor that relate to those goods
or services.
However, the activities of a
subcontractor are taken into account
when determining the country in which
goods are manufactured or produced or
in which services are provided under
§ 1.5000C–1(e). Furthermore, the final
regulations retain the rules in the
proposed regulations that payments
received by a nominee or agent on
behalf of a contracting party are
considered to be received by that
contracting party. For the definition of
a contracting party, see § 1.5000C–
1(c)(4). The final regulations also retain
the anti-abuse rule in § 1.5000C–5 that
in certain circumstances may treat a
subcontractor that is a foreign person as
being liable for tax under section 5000C.
2. Exemption for Certain Foreign
Humanitarian Assistance Contracts
The United States Agency for
International Development (USAID)
regularly enters into contracts with
foreign persons for goods and services
for purposes of implementing USAID’s
development projects and programs in a
host country. The proposed regulations
do not provide relief from the tax under
section 5000C for payments made
pursuant to some of these contracts. The
Treasury Department and the IRS have
concluded that it is appropriate to
exempt from the tax payments made to
foreign contracting parties that USAID

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engages to execute its development
projects and programs in a host country.
In this context, the U.S. government is
not procuring goods and services for its
own benefit, but rather to provide
humanitarian assistance for the benefit
of the host countries. As a result, the
final regulations add an exemption
under which section 5000C does not
apply to a contract for the purpose of
obtaining goods or services described in
or authorized under certain specified
statutes that are for the purpose of
providing foreign humanitarian
assistance when the acquiring agency
determines that the payment is for the
purpose of providing foreign
humanitarian assistance. This
exemption generally applies to a
contract entered into by an acquiring
agency with a foreign contracting party
to obtain goods or services for purposes
of implementing an agreement between
the United States and a foreign country
or a group of countries to provide
foreign humanitarian assistance as
authorized under the Food for Peace Act
(7 U.S.C. 1691, et seq.) and the Foreign
Assistance Act of 1961 (22 U.S.C. 2151,
et seq.).
Similarly, this exemption also
generally applies to contacts providing
foreign humanitarian assistance under
the Migration and Refugee Assistance
Act of 1962 (22 U.S.C. 2601 et seq.), the
Freedom Support Act of 1992 (22 U.S.C.
5801 et seq.), and the SEED Act of 1989
(22 U.S.C. 5401 et seq.), and to
transportation of humanitarian relief
supplies to foreign countries described
in 10 U.S.C. 402, foreign disaster
assistance described in 10 U.S.C. 404,
humanitarian demining assistance
described in 10 U.S.C. 407, excess nonlethal supplies for humanitarian relief
purposes described in 10 U.S.C. 2557,
and transportation of humanitarian
relief and for other humanitarian
purposes described in 10 U.S.C. 2561.
See § 1.5000C–1(d)(4). A corresponding
change is made to the withholding rules
to take into account this exemption. See
§ 1.5000C–2(b)(6).
3. Procurement Not Pursuant to the
Federal Acquisition Regulations
A commenter noted that it was
unclear whether payments by acquiring
agencies under contracts that are not
entered into pursuant to the Federal
Acquisition Regulations (FAR) are
subject to tax under section 5000C. The
FAR is the body of rules that generally
governs acquisitions and contracting
procedures for federal agencies. See 48
CFR Chapter 1. Although the final
regulations utilize certain concepts and
definitions contained in the FAR,
neither the Act nor the final regulations

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are limited to contracts executed
pursuant to the FAR. Thus, while the
term ‘‘contract’’ in the proposed and
final regulations uses the FAR definition
of the term ‘‘contract’’, it can
nevertheless include a contract that is
not executed under the FAR. A sentence
was added to the definition of contract
in the final regulations to clarify this
point.
4. Definition of International
Procurement Agreement and Least
Developed Countries
The General Explanation of Tax
Legislation prepared by the Staff of the
Joint Committee on Taxation
accompanying section 5000C explains
that parties engaged in cross-border
transactions are required to comply with
relevant trade agreements of the
jurisdictions in which they operate. See
Staff of the Joint Committee on
Taxation, General Explanation of Tax
Legislation Enacted in the 111th
Congress (JCS–2–11), at 694, March 16,
2011 (Joint Committee Explanation). In
describing these obligations, the Joint
Committee Explanation listed the
Government Procurement Agreement
(GPA) that is an annex to the World
Trade Organization agreement, as well
as the government procurement
obligations of U.S. free trade
agreements. Id. Accordingly, the
proposed regulations defined the term
international procurement agreement as
the World Trade Organization GPA
(WTO GPA) within the meaning of 48
CFR 25.400(a)(1) and any free trade
agreement to which the United States is
a party that includes government
procurement obligations that provide
appropriate competitive government
procurement opportunities to U.S.
goods, services, and suppliers.
One commenter noted that the FAR
provides that eligible products from
WTO GPA and free trade agreement
countries are entitled to certain
nondiscriminatory treatment, and that
48 CFR 25.404 expands this
nondiscriminatory treatment to include
least developed countries described in
48 CFR 25.400(a)(3). The commenter
requested that the final regulations also
expand the definition of international
procurement agreement to include
goods manufactured or produced or
services provided in a least developed
country.
The final regulations do not adopt this
comment for two reasons. First, the
proposed regulations referred to 48 CFR
25.400(a)(1) in order to utilize a term
that was widely understood in the
context of government procurement but
was not intended to incorporate any
related provisions of the FAR. Second,

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the Joint Committee Explanation
indicates that Congress intended the
exemption under section 5000C(b)
related to international procurement
agreements to be limited to signatories
of free trade agreements with
government procurement obligations or
procurement agreements.
5. Definition of International
Agreements
Section 301(c) of the Act requires that
section 5000C be applied in a manner
consistent with the United States’
obligations under international
agreements. A commenter indicated that
the proposed regulations limit
international agreements that may affect
the application of section 5000C to
income tax treaties and requested that
final regulations include other
international agreements that may
impact taxation. In particular, the
commenter indicated that the Vienna
Convention on Consular Relations and
bilateral framework agreements
negotiated and administered by USAID
contain tax provisions.
The final regulations do not adopt this
request. The specific international
agreements to which the commenter
referred prohibit host country taxation
of expenditures of a U.S. consulate or
amounts provided through USAID
programs but do not limit the United
States’ taxing rights. Consequently,
these international agreements do not
provide relief from the tax imposed
under section 5000C. Furthermore, in
identifying the income tax treaties that
provide relief from the tax under section
5000C, the regulations do not preclude
a foreign contracting party from
claiming relief from the tax under any
other applicable international
agreement.
6. Simplified Acquisition Threshold
The proposed regulations provide that
that the tax imposed under section
5000C will not apply to payments for
purchases under the simplified
acquisition procedures described in the
FAR that do not exceed the simplified
acquisition threshold in 48 CFR 2.101.
One commenter recommended that the
determination of the $150,000
simplified acquisition threshold should
be computed on an annual basis rather
than on a contract-by-contract basis. The
final regulations do not adopt this
suggestion because the Treasury
Department and the IRS have
determined that it is generally more
administrable to make a determination
of the threshold amount when entering
into a particular contract. However, as
described in 7. Personal Service
Contacts of this preamble, this

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suggestion has been adopted in the
limited context of personal service
contracts.
7. Personal Service Contracts
A commenter requested a new
exemption from the tax for service
contracts entered into with individuals
(personal service contracts). The
commenter further stated that some
acquiring agencies do not use the FAR
to procure personal services from
individuals. As such, the commenter
stated that these personal service
contracts do not fall within the
simplified acquisition procedures of the
FAR but typically are for an amount less
than $150,000 per contract. The
commenter also suggested that the
threshold amount of personal service
contracts with individuals would be
more appropriately determined on an
annual (rather than a per contract) basis.
Section 5000C applies to contracts for
the provision of services, so the final
regulations do not provide an
exemption for all personal service
contracts. However, the Treasury
Department and the IRS have decided
that it is appropriate to extend the
simplified acquisition exemption to
personal service contracts, whether or
not they are not executed pursuant to
the FAR. Further, the Treasury
Department and the IRS agree with the
comment that when applying this
exemption, the amount paid for
personal services under the contracts
should be determined on an annual
basis. Accordingly, the final regulations
provide an exemption in § 1.5000C–
1(d)(3) for payments for services
provided by, and under contracts with,
a single individual in which the
payments do not exceed on an annual
basis the simplified acquisition
threshold as described in 48 CFR 2.101
for all years of the contract. A
corresponding change is made to the
withholding rules to take into account
this exemption. See § 1.5000C–2(b)(5).
8. Definition of Emergency Acquisition
Proposed § 1.5000C–1(d)(2) exempts
payments pursuant to contracts awarded
for certain emergency acquisitions. One
commenter suggested that this
exemption be broadened to include
contracts that involve other agency
acquisitions of importance to the
government, such as contracts for
acquisitions determined to be in the
national interest by the acquiring
agency. The final regulations do not
adopt this comment for two reasons.
First, the Treasury Department and the
IRS have concluded that the more
limited exemption in the proposed
regulations appropriately balances

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compliance with section 5000C with the
government’s need to procure goods and
services in certain emergency situations.
Second, the commenter’s suggestion
would introduce a subjective,
potentially overbroad exemption from
the tax imposed by section 5000C.
9. Credit Card Payments
One commenter requested a new
exemption from the section 5000C tax
for payments made with a credit card.
The commenter indicated that applying
the section 5000C tax to payments made
with a credit card would be difficult to
administer because of the volume of
these transactions.
The final regulations do not adopt this
suggestion for several reasons. First, in
most cases, payments made with a
credit card will be in an amount that
will fall within the exemption for
payments for simplified acquisitions,
which applies to purchases under the
simplified acquisition procedures
described in the FAR that do not exceed
the simplified acquisition threshold as
described in 48 CFR 2.101. See
§ 1.5000C–1(d)(1). Second, in cases in
which payments made with a credit
card do not meet the exemption for
simplified acquisitions, adopting this
comment would allow foreign
contracting parties to avoid the tax by
receiving payment with a credit card for
large amounts that should be subject to
the tax.

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10. Payments Only in Part for Goods or
Services
A commenter indicated that, in some
circumstances, a contract may be for
goods or services but also include
payments that are not for goods or
services, giving as an example payments
to reimburse taxes incurred by the
contracting party. In response to the
comment, the withholding steps in the
final regulations clarify that acquiring
agencies should not withhold to the
extent that a payment is for something
other than goods or services. See
§ 1.5000C–2(b)(1). However, this
clarification should not be read to mean
that payments to reimburse taxes
incurred by the contracting party in
providing goods or services are anything
other than payments for those goods or
services.
11. Form W–14, ‘‘Certificate of Foreign
Contracting Party Receiving Federal
Procurement Payments’’
The proposed regulations provided
that a foreign contracting party must
submit a ‘‘Section 5000C Certificate’’
that provides all of the information
required by the proposed regulations to
claim an exemption from section 5000C.

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The proposed regulations also contained
a model Section 5000C Certificate.
Simultaneous with the publication of
the final regulations, the IRS is
publishing Form W–14, ‘‘Certificate of
Foreign Contracting Party Receiving
Federal Procurement Payments,’’ which
may be used as the Section 5000C
Certificate. Accordingly, the final
regulations do not contain a model
Section 5000C Certificate but rather
provide that a foreign person may use
Form W–14 as its Section 5000C
Certificate provided that it includes all
the necessary information. See
§§ 1.5000C–1(c)(14) and 1.5000C–
2(d)(7).
Notice 2015–35 listed the countries
that had entered into qualified income
tax treaties with the United States as of
the date of its publication. The
instructions to Form W–14, issued
contemporaneously with the
publication of these final regulations,
identify income tax treaties in force, as
of the date of the issuance of the form,
that are qualified income tax treaties.
When new income tax treaties come
into force, foreign persons and acquiring
agencies should review IRS Forms,
Instructions, Publications or other
media (including www.irs.gov) for an
updated list of qualified income tax
treaties, rather than Notice 2015–35.
12. Change in Circumstances
Section 1.5000C–2(d)(6) provides that
a foreign contracting party must submit
a revised Section 5000C Certificate
within 30 days of a change in
circumstances that causes the
information in a Section 5000C
Certificate held by the acquiring agency
to be incorrect with respect to the
acquiring agency’s determination of
whether to withhold or the amount of
withholding under Section 5000C. One
commenter suggested that an example
would be helpful to illustrate this rule.
In response to this comment, an
example was added to illustrate the
withholding obligation of an acquiring
agency when it receives a revised
Section 5000C Certificate due to a
change in circumstances. See
§ 1.5000C–6, Example 6.
13. Effective Date of Section 5000C and
the Final Regulations
Comments recommended that the
final regulations delay the applicability
of the tax imposed by section 5000C to
contracts entered into on or after the
date of the publication of the final
regulations. Alternatively, one
commenter recommended that the final
regulations delay the applicability of the
tax until the issuance of final
amendments to the FAR as promulgated

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by the Department of Defense (DoD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA), if any, that may
take into account these final regulations.
This commenter reasoned that a delay
in the application of the final
regulations would allow the necessary
time needed to amend the FAR in order
to take into account the rules provided
in the final regulations. While the DoD,
GSA, and NASA have amended some
sections of the FAR to reflect the
enactment of section 5000C (see 48 CFR
31.205–41(b), 52.229–3(b)(2), 52.229–
4(b)(2), 52.229–6(c)(2), and 52.229–
7(b)(2)), commenters stated that other
sections of the FAR (such as CFR
52.229–3) will also need to be amended.
Section 301(a)(3) of the Act
specifically provides that the tax
imposed by section 5000C applies to
payments received pursuant to contracts
entered into on and after January 2,
2011, indicating a clear Congressional
intent as to the effective date. Further,
the Act does not require Treasury
regulations or FAR amendments to be
applicable before the requirements of
the statute take effect. Thus, the final
regulations do not adopt this comment
and confirm the statutory effective date.
Consistent with the proposed
regulations, the final regulations apply
on and after the date that is 90 days after
the date they are published as final
regulations in the Federal Register
(applicability date). However,
contracting parties and acquiring
agencies may rely upon the rules in the
final regulations before the applicability
date.
Under the Act, while acquiring
agencies have an obligation to withhold,
the foreign contracting parties remain
liable for the tax if withholding does not
fully satisfy the foreign person’s tax
liability. The Treasury Department and
the IRS are aware that some foreign
persons subject to statutory obligations
under section 5000C may have deferred
compliance actions pending the
applicability of the final regulations.
The Treasury Department and the IRS
have concluded that 90 days is
sufficient for these foreign persons to
satisfy their tax and filing obligations
with respect to section 5000C for prior
periods. Accordingly, § 1.5000C–7
provides that if a foreign contracting
party fully satisfies its tax and filing
obligations under section 5000C with
respect to any payments received in tax
years ending before the applicability
date of the regulations on or before the
later of the applicability date of the final
regulations or the due date for the
foreign person’s income tax return for
the year in which the payment was

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received in a manner consistent with
the final regulations, penalties will not
be asserted on the foreign contracting
parties with respect to those payments
or returns. For example, assume a
foreign corporation received a single
specified Federal procurement payment
during its tax year ending on December
31, 2013 that is not described in any of
the exemptions in these final
regulations, and the payment was not
withheld upon. If the corporation files
Form 1120–F, ‘‘U.S. Income Tax Return
of a Foreign Corporation,’’ for 2013 and
pays the tax imposed under section
5000C in the manner described in
§ 1.5000C–4(d) before the applicability
date of the final regulations, penalties
will not be asserted with respect to that
payment or return. However, the final
regulations do not relieve a foreign
person of any applicable rules relating
to interest under Subtitle F.
Additionally, for purposes of section
6114 and the regulations thereunder, if
a foreign contracting party has received
a payment exempt from tax under a
qualified income tax treaty before the
effective date of the final regulations
under section 5000C, reporting is
waived if the foreign contracting party
has properly relied on Notice 2015–35.
See § 301.6114–1(e)(2).
Special Analyses
Certain IRS regulations, including
these, are exempt from the requirements
of Executive Order 12866, as
supplemented and reaffirmed by
Executive Order 13563. It has been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to this
regulation. It is hereby certified that the
collection of information contained in
this regulation will not have a
significant economic impact on a
substantial number of small entities.
Accordingly, a regulatory flexibility
analysis is not required. The collection
of information requirement in the
regulations will not have a significant
economic impact on a substantial
number of small entities because a
limited number of foreign contracting
parties that are small entities will be
subject to the tax, in part because the
final regulations provide exemptions for
simplified acquisitions and for certain
personal service contracts. Because
section 5000C(a) applies to foreign
persons regardless of the size of the
entity, a limited number of small foreign
entities that received specified Federal
procurement payments are affected by
the regulation. Pursuant to section
7805(f) of the Internal Revenue Code,
the NPRM preceding these regulations
was submitted to the Chief Counsel for

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Advocacy of the Small Business
Administration for comment on its
impact on small business.
Drafting Information
The principal authors of these
regulations are Kate Hwa and Rosy Lor,
Office of Associate Chief Counsel
(International). However, other
personnel from the Treasury
Department and the IRS participated in
their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 301, and
602 are amended as follows:
PART I—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 1.5000C–1 is also issued under 26
U.S.C. 5000C
Section 1.5000C–2 is also issued under 26
U.S.C. 5000C
Section 1.5000C–3 is also issued under 26
U.S.C. 5000C
Section 1.5000C–4 is also issued under 26
U.S.C. 5000C
Section 1.5000C–5 is also issued under 26
U.S.C. 5000C
Section 1.5000C–6 is also issued under 26
U.S.C. 5000C

Par. 2. An undesignated center
heading is added following § 1.5000A–
5 to read as follows:

■

Tax on Certain Foreign Procurement
Par. 3. Section 1.5000C–0 is added
after the undesignated center heading to
read as follows:

■

§ 1.5000C–0 Outline of regulation
provisions for section 5000C.

This section lists the captions
contained in §§ 1.5000C–1 through
1.5000C–7.
§ 1.5000C–1 Tax on specified Federal
procurement payments.
(a) Overview.

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(b) Imposition of tax.
(c) Definitions.
(d) Exemptions.
(1) Simplified acquisitions.
(2) Emergency acquisitions.
(3) Certain personal service contracts.
(4) Certain foreign humanitarian assistance
contracts.
(5) Certain international agreements.
(6) Goods manufactured or produced or
services provided in the United States.
(7) Goods manufactured or produced or
services provided in a country that is a party
to an international procurement agreement.
(e) Country in which goods are
manufactured or produced or services
provided.
(1) Goods manufactured or produced.
(2) Provision of services.
(3) Allocation of total contract price to
determine the nonexempt amount.
(4) Reduction or elimination of
withholding by an acquiring agency.
§ 1.5000C–2 Withholding on specified
Federal procurement payments.
(a) In general.
(b) Steps in determining the obligation to
withhold under section 5000C.
(1) Determine whether the payment is
pursuant to a contract for goods or services.
(2) Determine whether the payment is
made pursuant to a contract with a U.S.
person.
(3) Determine whether the payment is for
purchases under the simplified acquisition
procedures.
(4) Determine whether the payment is for
emergency acquisitions.
(5) Determine whether the payment is for
personal services under the simplified
acquisition threshold.
(6) Determine whether the payment is
pursuant to a foreign humanitarian assistance
contract.
(7) Determine whether the foreign
contracting party is entitled to relief pursuant
to an international agreement.
(8) Determine whether the contract is for
goods manufactured or produced or services
provided in the United States or in a foreign
country that is a party to an international
procurement agreement.
(9) Compute amounts to withhold.
(10) Deposit and report amounts withheld.
(c) Determining whether the contracting
party is a U.S. person.
(1) In general.
(2) Determination based on Taxpayer
Identification Number (TIN).
(3) Determination based on the Form W–
9.
(4) Contracting party treated as a foreign
contracting party.
(d) Withholding when a foreign contracting
party submits a Section 5000C Certificate.
(1) In general.
(2) Exemption for a foreign contracting
party entitled to the benefit of relief pursuant
to certain international agreements.
(3) Exemption when goods are
manufactured or produced or services
provided in the United States, or in a foreign
country that is a party to an international
procurement agreement.
(4) Information required for Section 5000C
Certificate.

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(5) Validity period of Section 5000C
Certificate.
(6) Change in circumstances.
(7) Form W–14.
(8) Time for submitting Section 5000C
Certificate.
(e) Offset for underwithholding or
overwithholding.
(1) In general.
(2) Underwithholding.
(3) Overwithholding.
§ 1.5000C–3 Payment and returns of tax
withheld by the acquiring agency.
(a) In general.
(b) Deposit rules.
(1) Acquiring agency with a chapter 3
deposit requirement treats amounts withheld
as under chapter 3.
(2) Acquiring agency with no chapter 3
filing obligation deposits withheld amounts
monthly.
(c) Return requirements.
(1) In general.
(2) Classified or confidential contracts.
(d) Special arrangement for certain
contracts.
§ 1.5000C–4 Requirement for the foreign
contracting party to file a return and pay
tax, and procedures for the contracting
party to seek a refund.
(a) In general.
(b) Tax obligation of foreign contracting
party independent of withholding.
(c) Return of tax by the foreign contracting
party.
(d) Time and manner of paying tax.
(e) Refund requests when amount withheld
exceeds tax liability.
§ 1.5000C–5

Anti-abuse rule.

§ 1.5000C–6

Examples.

§ 1.5000C–7

Effective/applicability date.

Par. 4. Sections 1.5000C–1 through
1.5000C–7 are added to read as follows:

■

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§ 1.5000C–1 Tax on specified Federal
procurement payments.

(a) Overview. This section provides
definitions and general rules relating to
the imposition of, and exemption from,
the tax on specified Federal
procurement payments under section
5000C. Section 1.5000C–2 provides
rules concerning withholding under
section 5000C(d)(1), including the steps
that must be taken to determine the
obligation to withhold and whether an
exemption from withholding applies.
Section 1.5000C–3 provides the time
and manner for depositing the amounts
withheld under section 5000C and the
related reporting requirements. Section
1.5000C–4 contains the rules that apply
to a foreign contracting party that must
pay and report the tax under section
5000C when the tax obligation under
section 5000C is not fully satisfied by
withholding, as well as procedures by
which a contracting party may seek a
refund when the amount withheld

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exceeds its tax liability under section
5000C. Section 1.5000C–5 contains an
anti-abuse rule. Section 1.5000C–6
contains examples illustrating the
principles of §§ 1.5000C–1 through
1.5000C–4. Finally, § 1.5000C–7
contains the effective/applicability date
for §§ 1.5000C–1 through 1.5000C–7.
(b) Imposition of tax. Except as
otherwise provided, section 5000C
imposes on any foreign contracting
party a tax equal to 2 percent of the
amount of a specified Federal
procurement payment. In general, the
tax imposed under section 5000C
applies to specified Federal
procurement payments received
pursuant to contracts entered into on
and after January 2, 2011. Specified
Federal procurement payments received
by a nominee or agent on behalf of a
contracting party are considered to be
received by that contracting party. The
tax imposed under section 5000C is to
be applied in a manner consistent with
U.S. obligations under international
agreements. Payments for the purchase
or lease of land or an interest in land are
not subject to the tax imposed under
section 5000C.
(c) Definitions. Solely for purposes of
section 5000C and §§ 1.5000C–1
through 1.5000C–7, the following
definitions apply:
(1) The term acquiring agency means
the U.S. government department,
agency, independent establishment, or
corporation described in paragraph
(c)(7) of this section that is a party to the
contract. To the extent that a U.S.
government department or agency, other
than the acquiring agency, is making the
payments pursuant to the contract, that
department or agency is also considered
to be the acquiring agency.
(2) The term contract has the same
meaning as provided in 48 CFR 2.101,
and thus does not include a grant
agreement or a cooperative agreement
within the meaning of 31 U.S.C. 6304
and 6305, respectively. A contract may
include an agreement that is not
executed under the Federal Acquisition
Regulations (FAR), 48 CFR Chapter 1.
(3) The term contract ratio refers to
the nonexempt amount over the total
contract price.
(4) The term contracting party means
any person that is a party to a contract
with the U.S. government that is entered
into on or after January 2, 2011. See
§ 1.5000C–1(b) for situations involving a
nominee or agent.
(5) The term foreign contracting party
means a contracting party that is a
foreign person.
(6) The term foreign person means any
person other than a United States

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person (as defined in section
7701(a)(30)).
(7) The term Government of the
United States or U.S. government means
the executive departments specified in 5
U.S.C. 101, the military departments
specified in 5 U.S.C. 102, the
independent establishments specified in
5 U.S.C. 104(1), and wholly owned
government corporations specified in 31
U.S.C. 9101(3). Unless otherwise
specified in 5 U.S.C. 101, 102, or 104(1),
or 31 U.S.C. 9101(3), the term
Government of the United States or U.S.
government does not include any quasigovernmental entities or
instrumentalities of the U.S.
government.
(8) The term international
procurement agreement means the
World Trade Organization Government
Procurement Agreement within the
meaning of 48 CFR 25.400(a)(1) and any
free trade agreement to which the
United States is a party that includes
government procurement obligations
that provide appropriate competitive
government procurement opportunities
to U.S. goods, services, and suppliers. A
party to an international procurement
agreement is a signatory to the
agreement and does not include a
country that is merely an observer with
respect to the agreement.
(9) The term nonexempt amount
means the portion of the contract price
allocated to nonexempt goods and
nonexempt services.
(10) The term nonexempt goods
means goods manufactured or produced
in a foreign country that is not a party
to an international procurement
agreement with the United States.
(11) The term nonexempt services
means services provided in a foreign
country that is not a party to an
international procurement agreement
with the United States.
(12) The term outlying areas has the
same meaning as set forth in 48 CFR
2.101(b), which includes Puerto Rico,
the Northern Mariana Islands, American
Samoa, Guam, the Virgin Islands, Baker
Island, Howland Island, Jarvis Island,
Johnston Atoll, Kingman Reef, Midway
Islands, Navassa Island, Palmyra Atoll,
and Wake Atoll.
(13) The term qualified income tax
treaty means a U.S. income tax treaty in
force that contains a nondiscrimination
provision that applies to the tax
imposed under section 5000C and
prohibits taxation that is more
burdensome on a foreign national than
a U.S. national (or in the case of certain
income tax treaties, taxation that is more
burdensome on a foreign citizen than a
U.S. citizen), regardless of its residence.

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(14) The term Section 5000C
Certificate means a written statement
that includes the information described
in § 1.5000C–2(d) that the foreign
contracting party submits to an
acquiring agency for the purposes of
demonstrating that the foreign
contracting party is eligible for certain
exemptions from withholding (in whole
or in part) under section 5000C with
respect to a contract. The term may also
include any form that the Internal
Revenue Service may prescribe as a
substitute for the Section 5000C
Certificate, such as Form W–14,
‘‘Certificate of Foreign Contracting Party
Receiving Federal Procurement
Payments.’’
(15) The term specified Federal
procurement payment means any
payment made pursuant to a contract
with a foreign contracting party that is
for goods manufactured or produced or
services provided in a foreign country
that is not a party to an international
procurement agreement with the United
States. For purposes of the prior
sentence, a foreign country does not
include an outlying area.
(16) The term Taxpayer Identification
Number or TIN means the identifying
number assigned to a person under
section 6109, as defined in section
7701(a)(41).
(17) The term total contract price
means the total cost to the U.S.
Government of the goods and services
procured under a contract and paid to
the contracting party.
(d) Exemptions. The tax imposed
under paragraph (b) of this section does
not apply to the payments made in the
following situations. For the exemptions
in paragraphs (d)(5), (6) and (7) of this
section, see § 1.5000C–2(d) for the
procedures to eliminate withholding by
an acquiring agency.
(1) Simplified acquisitions. Payments
for purchases under the simplified
acquisition procedures that do not
exceed the simplified acquisition
threshold as described in 48 CFR 2.101.
(2) Emergency acquisitions. Payments
made pursuant to a contract if the
contract is—
(i) Awarded under the ‘‘unusual and
compelling urgency’’ authority of 48
CFR 6.302–2, or
(ii) Entered into under the emergency
acquisition flexibilities as defined in 48
CFR part 18.
(3) Certain personal service contracts.
Payments for services provided by, and
under contracts with, a single
individual in which the payments do
not (and will not) exceed on an annual
calendar year basis the simplified
acquisition threshold as described in 48
CFR 2.101 for all years of the contract.

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Payments that satisfy this exemption
remain exempt if the contract is later
renegotiated so that future payments
under the contract do not meet this
exemption.
(4) Certain foreign humanitarian
assistance contracts. Payments made by
the U.S. government 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, if the
acquiring agency determines that the
payment is for the purpose of providing
foreign humanitarian assistance.
(5) Certain international agreements.
Payments made by the U.S. government
pursuant to a contract with a foreign
contracting party when the payments
are entitled to relief from the tax
imposed under section 5000C pursuant
to an international agreement with the
United States, including relief pursuant
to a nondiscrimination provision of a
qualified income tax treaty, because the
foreign contracting party is entitled to
the benefit of that provision.
(6) Goods manufactured or produced
or services provided in the United
States. A payment made pursuant to a
contract to the extent that the payment
is for goods manufactured or produced
or services provided in the United
States.
(7) Goods manufactured or produced
or services provided in a country that is
a party to an international procurement
agreement. A payment made pursuant
to a contract to the extent the payment
is for goods manufactured or produced
or services provided in a country that is
a party to an international procurement
agreement, as defined in paragraph
(c)(8) of this section.
(e) Country in which goods are
manufactured or produced or services
provided—
(1) Goods manufactured or produced.
Solely for purposes of section 5000C,
goods are manufactured or produced in
the country (or countries)—
(i) Where property has been
substantially transformed into the goods
that are procured pursuant to a contract;
or
(ii) Where there has been assembly or
conversion of component parts
(involving activities that are substantial
in nature and generally considered to
constitute the manufacture or
production of property) into the final
product that constitutes the goods
procured pursuant to a contract.
(2) Provision of services. Solely for
purposes of section 5000C, services are

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considered to be provided in the
country where the individuals
performing the services are physically
located when they perform their duties
pursuant to the contract.
(3) Allocation of total contract price to
determine the nonexempt amount. If,
pursuant to a contract, goods are
manufactured or produced, or services
are provided, in multiple countries and
only a portion of the goods
manufactured or produced, or the
services provided, pursuant to the
contract are nonexempt goods or
nonexempt services, a foreign
contracting party may use a reasonable
allocation method to determine the
nonexempt amount. A reasonable
allocation method would include taking
into account the proportionate costs
(including the cost of labor and raw
materials) incurred to manufacture or
produce the goods in each country, or
taking into account the proportionate
costs incurred to provide the services in
each country.
(4) Reduction or elimination of
withholding by an acquiring agency. For
procedures to reduce or eliminate
withholding by an acquiring agency
based on where goods are manufactured
or produced or where services are
provided, including as a result of an
allocation under this paragraph (e), see
§ 1.5000C–2(d).
§ 1.5000C–2 Withholding on specified
Federal procurement payments.

(a) In general. Except as otherwise
provided in this section, every acquiring
agency making a specified Federal
procurement payment on which tax is
imposed under section 5000C and
§§ 1.5000C–1 through 1.5000C–7 must
deduct and withhold an amount equal
to 2 percent of the payment. For rules
relating to the liability of a foreign
contracting party with respect to
specified Federal procurement
payments not fully withheld upon at
source, see § 1.5000C–4. An acquiring
agency may rely upon any information
furnished by a contracting party under
this section unless the acquiring agency
has reason to know that the information
is incorrect or unreliable. An acquiring
agency has reason to know that the
information is incorrect or unreliable if
it has knowledge of relevant facts or
statements contained in the submitted
information such that a reasonably
prudent person in the position of the
acquiring agency would know that the
information provided is incorrect or
unreliable.
(b) Steps in determining the obligation
to withhold under section 5000C. An
acquiring agency generally determines
its obligation to withhold under section

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5000C according to the steps described
in this paragraph (b). See, however,
paragraph (e) of this section for
situations in which withholding may be
increased in the case of
underwithholding, or may be decreased
in the case of overwithholding.
(1) Determine whether the payment is
pursuant to a contract for goods or
services. The acquiring agency
determines whether it is making a
payment pursuant to a contract for
goods or services. To the extent that the
acquiring agency is making a payment
for any other purpose, it does not have
an obligation to withhold under section
5000C on the payment.
(2) Determine whether the payment is
made pursuant to a contract with a U.S.
person. The acquiring agency
determines whether the payment is
made pursuant to a contract with a
person considered to be a United States
person (U.S. person) in accordance with
paragraph (c) of this section. If the other
contracting party is a U.S. person, the
acquiring agency does not have an
obligation to withhold under section
5000C on the payment.
(3) Determine whether the payment is
for purchases under the simplified
acquisition procedures. The acquiring
agency determines whether the payment
is for purchases under the simplified
acquisitions procedures that do not
exceed the simplified acquisition
threshold as described in 48 CFR 2.101.
If it is, the acquiring agency does not
have an obligation to withhold under
section 5000C on the payment.
(4) Determine whether the payment is
for emergency acquisitions. The
acquiring agency determines whether
the payment is made for certain
emergency acquisitions within the
meaning of § 1.5000C–1(d)(2). If it is, the
acquiring agency does not have an
obligation to withhold under section
5000C on the payment.
(5) Determine whether the payment is
for personal services under the
simplified acquisition threshold. The
acquiring agency determines whether
payments for services under contracts
with a single individual do not exceed
the simplified acquisition threshold as
described in 48 CFR 2.101 on an annual
basis for all years of the contract. If that
is the case, the acquiring agency does
not have an obligation to withhold
under section 5000C on the payment.
(6) Determine whether the payment is
pursuant to a foreign humanitarian
assistance contract. The acquiring
agency determines whether the payment
is made pursuant to a foreign
humanitarian assistance contract
described in § 1.5000C–1(d)(4). If it is,
the acquiring agency does not have an

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obligation to withhold under section
5000C on the payment.
(7) Determine whether the foreign
contracting party is entitled to relief
pursuant to an international agreement.
If the foreign contracting party submits
a Section 5000C Certificate in
accordance with paragraph (d) of this
section representing that the foreign
contracting party is entitled to relief
from the tax imposed under section
5000C pursuant to an international
agreement with the United States (such
as relief pursuant to the
nondiscrimination provision of a
qualified income tax treaty), the
acquiring agency does not have an
obligation to withhold under section
5000C on the payment.
(8) Determine whether the contract is
for goods manufactured or produced or
services provided in the United States or
in a foreign country that is a party to an
international procurement agreement. If
the foreign contracting party submits a
Section 5000C Certificate in accordance
with paragraph (d) of this section that
represents that the contract is for goods
manufactured or produced or services
provided in the United States, or in a
foreign country that is a party to an
international procurement agreement,
the acquiring agency does not have an
obligation to withhold. If the Section
5000C Certificate provides that
payments under the contract are only
partially exempt from withholding
under section 5000C, the acquiring
agency must withhold to the extent
described in paragraph (b)(8) of this
section.
(9) Compute amounts to withhold. If,
after evaluating each step described in
this paragraph (b), the acquiring agency
determines that it has an obligation to
withhold, the acquiring agency
computes the amount of withholding by
multiplying the amount of the payment
by 2 percent, unless the foreign
contracting party has provided a Section
5000C Certificate or the payment is only
in part for goods or services. In cases in
which the Section 5000C Certificate
demonstrates that the exemption in Step
8 applies, the acquiring agency
generally computes the amount of
withholding by multiplying the amount
of the payment by the contract ratio
provided on the most recent Section
5000C Certificate, the product of which
is multiplied by 2 percent. However, in
cases in which the exemption in Step 8
applies and the requirements of
paragraph (d)(4)(iii)(B)(2) of this section
are met, the acquiring agency computes
the amount of withholding based on the
payment for the specifically identified
items, which may be identified by the
contract line item number, or CLIN. In

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the case in which the payment is only
in part for goods or services, the
acquiring agency reduces the amount of
the payment subject to the tax to the
extent it is for something other than
goods or services. The acquiring agency
withholds the computed amount from
the payment.
(10) Deposit and report amounts
withheld. The acquiring agency deposits
and reports the amounts determined in
the prior step in accordance with
§ 1.5000C–3.
(c) Determining whether the
contracting party is a U.S. person—(1)
In general. An acquiring agency must
rely on the provisions of this paragraph
(c) to determine the status of the
contracting party as a U.S. person for
purposes of withholding under section
5000C.
(2) Determination based on Taxpayer
Identification Number (TIN). An
acquiring agency must treat a
contracting party as a U.S. person if the
U.S. government information system
(such as the System for Award
Management (SAM)) indicates that the
contracting party is a corporation (for
example, because the name listed in
SAM contains the term ‘‘Corporation,’’
‘‘Inc.,’’ or ‘‘Corp.’’) and that it has a TIN
that begins with two digits other than
‘‘98’’ (a limited liability company or
LLC is not treated as a corporation for
purposes of this paragraph (c)(2)).
Further, an acquiring agency must treat
a contracting party as a U.S. person if
the acquiring agency has access to a U.S.
government information system that
indicates that the contracting party is an
individual with a TIN that begins with
a digit other than ‘‘9’’.
(3) Determination based on the Form
W–9. An acquiring agency must treat a
contracting party as a U.S. person if the
person has submitted to it a valid Form
W–9, ‘‘Request for Taxpayer
Identification Number (TIN) and
Certificate’’ (or valid substitute form
described in § 31.3406(h)–3(c)(2) of this
chapter), signed under penalties of
perjury.
(4) Contracting party treated as a
foreign contracting party. If an acquiring
agency cannot determine that a
contracting party is a U.S. person based
on application of paragraph (c)(2) or (3)
of this section, then the contracting
party is treated as a foreign contracting
party for purposes of this section.
(d) Withholding when a foreign
contracting party submits a Section
5000C Certificate—(1) In general. Unless
the acquiring agency has reason to know
that the information is incorrect or
unreliable, the acquiring agency may
rely on a claim that a foreign contracting
party is entitled to an exemption (in

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whole or in part) from withholding on
payments pursuant to a contract if the
foreign contracting party provides a
Section 5000C Certificate to the
acquiring agency as prescribed in this
paragraph (d). When a Section 5000C
Certificate is furnished, the acquiring
agency does not withhold, or must
reduce the amount of withholding, on
payments made to a foreign person if
the certificate establishes that the
foreign person is wholly or partially
exempt from withholding. An acquiring
agency may establish a system for a
foreign contracting party to
electronically furnish a Section 5000C
Certificate.
(2) Exemption for a foreign
contracting party entitled to the benefit
of relief pursuant to certain
international agreements. An acquiring
agency does not withhold on payments
pursuant to a contract with a foreign
contracting party when the payment is
entitled to relief from the tax imposed
under section 5000C pursuant to an
international agreement, including relief
pursuant to a nondiscrimination
provision of a qualified income tax
treaty, because the foreign contracting
party is entitled to the benefit of that
agreement and the foreign contracting
party has submitted a Section 5000C
Certificate that includes all of the
information described in paragraphs
(d)(4)(i) and (ii) of this section.
(3) Exemption when goods are
manufactured or produced or services
provided in the United States, or in a
foreign country that is a party to an
international procurement agreement.
An acquiring agency does not withhold
on payments pursuant to a contract with
a foreign contracting party to the extent
that the payments are for goods
manufactured or produced or services
provided in the United States or in a
foreign country that is a party to an
international procurement agreement
with the United States, provided that
the foreign contracting party has
submitted a Section 5000C Certificate
that includes all of the information
described in paragraphs (d)(4)(i) and
(iii) of this section. If the Section 5000C
Certificate provides that the payment is
only partially exempt from withholding
under section 5000C, the acquiring
agency must withhold to the extent that
the payment is not exempt.
(4) Information required for Section
5000C Certificate—(i) In general. The
Section 5000C Certificate must be
signed under penalties of perjury by the
foreign contracting party and contain—
(A) The name of the foreign
contracting party, country of
organization (if applicable), and

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permanent residence address of the
foreign contracting party;
(B) The mailing address of the foreign
contracting party (if different than the
permanent residence address);
(C) The TIN assigned to the foreign
contracting party (if any);
(D) The identifying or reference
number on the contract (if known);
(E) The name and address of the
acquiring agency;
(F) A statement that the person
signing the Section 5000C Certificate is
the foreign contracting party listed in
paragraph (d)(4)(i)(A) of this section (or
is authorized to sign on behalf of the
foreign contracting party);
(G) A statement that the foreign
contracting party is not acting as an
agent or nominee for another foreign
person with respect to the goods
manufactured or produced or services
provided under the contract;
(H) A statement that the foreign
contracting party agrees to pay an
amount equal to any tax (including any
applicable penalties and interest) due
under section 5000C that the acquiring
agency does not withhold under section
5000C;
(I) A statement that the foreign
contracting party acknowledges and
understands the rules in § 1.5000C–4
relating to procedural obligations
related to section 5000C; and
(J) A statement that the foreign
contracting party has not engaged in a
transaction (or series of transactions)
with a principal purpose of avoiding the
tax imposed under section 5000C as
defined in § 1.5000C–5.
(ii) Additional information required
for claiming an exemption based on
certain international agreements with
the United States. In addition to the
information required by paragraph
(d)(4)(i) of this section, a foreign
contracting party claiming an exemption
from withholding in reliance on a
provision of an international agreement
with the United States, including a
qualified income tax treaty, must
provide—
(A) The name of the international
agreement under which the foreign
contracting party is claiming benefits;
(B) The specific provision of the
international agreement relied upon (for
example, the nondiscrimination article
of a qualified income tax treaty); and
(C) The basis on which it is entitled
to the benefits of that provision (for
example, because the foreign
contracting party is a corporation
organized in a foreign country that has
in force a qualified income tax treaty
with the United States that covers all
nationals, regardless of their residence).

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(iii) Additional required information
for claiming exemption based on
country where goods are manufactured
or services provided. (A) In general. In
addition to the information required by
paragraph (d)(4)(i) of this section, a
foreign contracting party claiming an
exemption from withholding (in whole
or in part) because payments will be
pursuant to a contract for goods
manufactured or produced or services
provided in the United States, or a
foreign country that is party to an
international procurement agreement,
must describe on the Section 5000C
Certificate the relevant goods or services
and the country (or countries) in which
they are manufactured or produced, or
are provided, and must include the
name of the international procurement
agreement or agreements (if relevant).
(B) Information on allocation to
exempt and nonexempt amounts. (1) In
general. In situations in which a foreign
contracting party claims the exemption
in paragraph (d)(3) of this section with
respect to only a portion of the
payments received under the contract,
the Section 5000C Certificate must
include an explanation of the method
used by the foreign contracting party to
allocate the total contract price among
the countries, as described in
§ 1.5000C–1(e)(3), if applicable. In
general, the Section 5000C Certificate
also must include the total contract
price and the nonexempt amount;
however, when necessary, an estimate
of the total contract price or the
nonexempt amount may be used. For
example, total contract price may be
estimated when a Section 5000C
Certificate is being completed with
respect to payments to be made
pursuant to a cost-reimbursement
contract that is paid on the basis of
actual incurred costs and the total
amount of such costs is not known at
the time the certificate is provided.
(2) Specific identification of exempt
items. If agreed to by the acquiring
agency, the Section 5000C Certificate
may identify specific exempt and
nonexempt amounts. For example,
specific contract line items (such as a
contract line item number or CLIN)
identified in the contract may be listed
on the Section 5000C Certificate as
exempt and nonexempt amounts (in
whole or in part), as applicable. When
this paragraph applies, and whether or
not the contract identifies exempt and
nonexempt amounts, a foreign
contracting party must provide the
information required by paragraphs
(d)(4)(iii)(A) and (d)(4)(iii)(B)(1) of this
section, on the Section 5000C Certificate
to explain why the contract line items
are eligible for an exemption; however,

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the foreign contracting party is not
required to include information about
the total contract price under this
paragraph. In these circumstances, only
one Section 5000C Certificate is
required to be provided identifying the
exempt and nonexempt contract line
items that relate to the contract (for
example, a spreadsheet may be attached
to the Section 5000C Certificate that
identifies the contract line items with an
explanation for the treatment as exempt
or nonexempt).
(5) Validity period of Section 5000C
Certificate. Except as otherwise
provided in paragraph (d)(6) of this
section, the Section 5000C Certificate is
valid for the term of the contract.
(6) Change in circumstances. A
foreign contracting party must submit a
revised Section 5000C Certificate within
30 days of a change in circumstances
that causes the information in a Section
5000C Certificate held by the acquiring
agency to be incorrect with respect to
the acquiring agency’s determination of
whether to withhold or the amount of
withholding under Section 5000C. An
acquiring agency must request a new
Section 5000C Certificate from a
contracting party in circumstances in
which it knows (or has reason to know)
that a previously submitted Section
5000C Certificate becomes incorrect or
unreliable. An acquiring agency may
request an updated Section 5000C
Certificate at any time, including when
other documentation is required under
the contract, such as the annual
representations and certifications
required in 48 CFR 4.1201. See
§ 1.5000C–6, Example 6, for an
illustration of this paragraph (6).
(7) Form W–14. A foreign contracting
party may choose to use Form W–14,
‘‘Certificate of Foreign Contracting Party
Receiving Federal Procurement
Payments’’ (or other form that the IRS
may prescribe), as its Section 5000C
Certificate, provided that it includes all
the necessary information required by
this paragraph (d).
(8) Time for submitting Section 5000C
Certificate. A contracting party must
submit the Section 5000C Certificate
(such as Form W–14 or Form W–9) as
early as practicable (for example, when
the offer for the contract is submitted to
the U.S. government). In all cases,
however, the Section 5000C Certificate
must be submitted to the acquiring
agency no later than the date of
execution of the contract.
(e) Offset for underwithholding or
overwithholding—(1) In general. If the
foreign contracting party discovers that
amounts withheld on prior payments
either were insufficient or in excess of
the amount required to satisfy its tax

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liability under section 5000C, the
foreign contracting party may request
the acquiring agency to increase or
decrease the amount of withholding on
future payments for which withholding
is required under section 5000C. The
request must be in writing, signed under
penalties of perjury, contain the amount
by which the foreign contracting party
requests to increase or decrease future
amounts withheld under section 5000C,
and explain the reason for the request.
The request may be submitted in
conjunction with an original or updated
Section 5000C Certificate.
(2) Underwithholding. Upon receipt of
a request described in paragraph (e)(1)
of this section, acquiring agencies may
increase the amount of withholding
under this paragraph to correct
underwithholding only if the payment
for which the increase is applied is
otherwise subject to withholding under
section 5000C and made before the date
that Form 1042, ‘‘Annual Withholding
Tax Return for U.S. Source Income of
Foreign Persons,’’ is required to be filed
(not including extensions) with respect
to the payment for which the
underwithholding occurred. Amounts
withheld under this paragraph must be
deposited and reported in the time and
manner as prescribed by § 1.5000C–3.
See § 1.5000C–4 for procedures for a
foreign contracting party that must pay
tax due when its tax liability under
section 5000C was not fully satisfied by
withholding by an acquiring agency.
(3) Overwithholding. Upon receipt of
a request described in paragraph (e)(1)
of this section, acquiring agencies may
decrease the amount of withholding on
subsequent payments made to the
foreign contracting party that are
otherwise subject to withholding under
section 5000C provided that the
payment for which the decrease is
applied is made on or before the date on
which Form 1042, ‘‘Annual
Withholding Tax Return for U.S. Source
Income of Foreign Persons,’’ is required
to be filed (not including extensions)
with respect to the payment for which
the overwithholding occurred. See
§ 1.5000C–4(e) for procedures for
foreign contracting parties to file a claim
for refund for the overwithheld amount
under section 5000C.
§ 1.5000C–3 Payment and returns of tax
withheld by the acquiring agency.

(a) In general. This section provides
administrative procedures that
acquiring agencies must follow to satisfy
their obligations to deposit and report
amounts withheld under § 1.5000C–2.
An acquiring agency with a section
5000C withholding obligation must
increase the amount it deducts and

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withholds under chapter 3 for fixed or
determinable annual or periodical
income (FDAP income) by the amount
it must withhold under § 1.5000C–2.
Accordingly, this section generally
applies the administrative provisions of
chapter 3 for FDAP income relating to
the deposit, payment, and reporting for
amounts withheld under § 1.5000C–2,
and contains some variation from those
provisions to take into account the
nature of the tax imposed under section
5000C.
(b) Deposit rules—(1) Acquiring
agency with a chapter 3 deposit
requirement treats amounts withheld as
under chapter 3. If an acquiring agency
has a chapter 3 deposit obligation for a
period, it must treat any amount
withheld under § 1.5000C–2 as an
additional amount of tax withheld
under chapter 3 for purposes of the
deposit rules of § 1.6302–2. Thus,
depending on the combined amount
withheld under chapter 3 and
§ 1.5000C–2, an acquiring agency
subject to this paragraph (b)(1) must
make monthly deposits, quartermonthly deposits, or annual deposits
under the rules in § 1.6302–2. To the
extent provided in forms, instructions,
or publications prescribed by the
Internal Revenue Service (IRS),
acquiring agencies must deposit all
withheld amounts by electronic funds
transfer, as that term is defined in
§ 31.6302–1(h)(4)(i) of this chapter.
(2) Acquiring agency with no chapter
3 filing obligation deposits withheld
amounts monthly. If an acquiring
agency has no chapter 3 deposit
obligation to which the deposit rules of
§ 1.6302–2 apply for a calendar month,
it must make monthly deposits of the
amounts withheld under the rules in
this paragraph (b)(2). Thus, an acquiring
agency with no chapter 3 deposit
obligations and that has withheld any
amount under § 1.5000C–2 during any
calendar month must deposit that
amount by the 15th day of the month
following the payment. To the extent
provided in forms, instructions, or
publications prescribed by the Internal
Revenue Service (IRS), acquiring
agencies must deposit all withheld
amounts by electronic funds transfer, as
that term is defined in § 31.6302–
1(h)(4)(i) of this chapter.
(c) Return requirements—(1) In
general. Except as provided in
paragraph (c)(2) of this section, an
acquiring agency that withholds an
amount pursuant to section 5000C
generally must file Form 1042–S,
‘‘Foreign Person’s U.S. Source Income
Subject to Withholding,’’ and Form
1042, ‘‘Annual Withholding Tax Return
for U.S. Source Income of Foreign

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Persons,’’ each year, or other such forms
as the IRS may prescribe, to report
information related to amounts
withheld under section 5000C. The
acquiring agency must prepare a Form
1042–S for each contracting party
reporting the amount withheld under
section 5000C for the preceding
calendar year. The Form 1042 must
show the aggregate amounts withheld
under section 5000C that were required
to be reported on Forms 1042–S
(including those amounts withheld
under section 5000C for which a Form
1042–S is not required to be filed
pursuant to paragraph (c)(2) of this
section). The Form 1042 must also
include the information required by the
form and accompanying instructions.
Further, any forms required under this
paragraph (c) are due at the same time,
at the same place, and eligible for the
same extended due dates and may be
amended in the same manner as Form
1042 and Form 1042–S (or such other
forms as the IRS may prescribe related
to chapter 3). The acquiring agency
must furnish a copy of the Form 1042–
S (or such other form as the IRS may
prescribe for the same purpose) to the
contracting party for whom the form is
prepared on or before March 15 of the
calendar year following the year in
which the amount subject to reporting
under section 5000C was paid. It must
be filed with a transmittal form as
provided in the instructions for Form
1042–S and to the transmittal form.
Section 5000C Certificates or other
statements or information as prescribed
by § 1.5000C–2 that are provided to the
acquiring agency are not required to be
attached to the Form 1042 filed with the
IRS. However, an acquiring agency that
is required to file Form 1042 must retain
a copy of Form 1042, Form 1042–S, the
Section 5000C Certificates, or other
statements or information prescribed by
§ 1.5000C–2 for at least three years from
the original due date of Form 1042 or
the date it was filed, whichever is later.
An acquiring agency that is not required
to file Form 1042 must retain any
Section 5000C Certificates or other
statements or information as prescribed
by § 1.5000C–2 for at least three years
from the date the Form 1042 would
have been due had the acquiring agency
had an obligation to file.
(2) Classified or confidential
contracts. An acquiring agency is not
required to report information otherwise
required by this section on Form 1042–
S for payments made pursuant to
classified or confidential contracts (as
described in section 6050M(e)(3)),
unless the acquiring agency determines
that the information reported on the

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Form 1042–S does not compromise the
safeguarding of classified information or
national security.
(d) Special arrangement for certain
contracts. In limited circumstances, the
IRS may authorize the amount
otherwise required to be withheld under
section 5000C to be deposited in the
time and manner mutually agreed upon
by the acquiring agency and the foreign
contracting party. In these
circumstances, the IRS may in its sole
discretion also modify any reporting or
return requirements of the acquiring
agency or the foreign contracting party.
§ 1.5000C–4 Requirement for the foreign
contracting party to file a return and pay
tax, and procedures for the contracting
party to seek a refund.

(a) In general. For purposes of subtitle
F of the Internal Revenue Code
(‘‘Procedure and Administration’’), the
tax imposed under section 5000C on
foreign persons is treated as a tax
imposed under subtitle A. Except as
provided elsewhere in the regulations
under section 5000C, forms, or
accompanying instructions, the tax
imposed on foreign contracting parties
under section 5000C is administered in
a manner similar to gross basis income
taxes. This section provides procedures
that a foreign contracting party must
follow to satisfy its obligations to report
and deposit tax due under § 1.5000C–1
as well as procedures for contracting
parties to seek a refund of amounts
overwithheld.
(b) Tax obligation of foreign
contracting party independent of
withholding. A foreign contracting party
subject to tax under section 5000C and
§§ 1.5000C–1 through 1.5000C–7
remains liable for the tax unless its tax
obligation was fully satisfied by
withholding by an acquiring agency in
accordance with §§ 1.5000C–2 and
1.5000C–3.
(c) Return of tax by the foreign
contracting party. If the tax liability
under § 1.5000C–1 relating to a payment
is not fully satisfied by withholding in
accordance with §§ 1.5000C–2 and
1.5000C–3 (including as a result of the
use of an estimated nonexempt amount
or estimated total contract price in
computing the contract ratio), a foreign
contracting party subject to tax under
§ 1.5000C–1 during a calendar year must
make a return of tax on, for example,
Form 1120–F, ‘‘U.S. Income Tax Return
of a Foreign Corporation,’’ or such other
form as the Internal Revenue Service
(IRS) may prescribe to report the
amount of tax due under section 5000C
(required return). A foreign contracting
party with no other U.S. tax filing
obligation other than with respect to its

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liability for the tax imposed under
section 5000C must file its required
return on or before the fifteenth day of
the sixth month following the close of
its taxable year. The required return
must include the information required
by the form and accompanying
instructions. The required return must
be filed at the place and time (including
any extension of time to file) provided
by the form and accompanying
instructions. Penalties for failure to file
contained in Subtitle F can apply to
foreign contracting parties who fail to
file the required return. A foreign
contracting party must attach copies of
all Forms 1042–S, ‘‘Foreign Person’s
U.S. Source Income Subject to
Withholding,’’ received from acquiring
agencies (if any) to the required return.
(d) Time and manner of paying tax. A
foreign contracting party must pay the
tax imposed under section 5000C in the
manner provided and in the time
prescribed in the required return and
accompanying instructions. In general,
the foreign contracting party must pay
the tax at the time that the required
return is due, excluding extensions. To
the extent provided in forms,
instructions, or publications prescribed
by the IRS, each foreign contracting
party must deposit tax due under
section 5000C by electronic funds
transfer, as that term is defined in
§ 31.6302–1(h)(4)(i) of this chapter. A
foreign contracting party that fails to
pay tax in the time and manner
prescribed in this section (or under
forms, instructions, or publications
prescribed by the IRS under this
section) may be subject to penalties and
interest under Subtitle F.
(e) Refund requests when amount
withheld exceeds tax liability. After
taking into account any offsets pursuant
to § 1.5000C–2(e)(3), if the acquiring
agency has overwithheld amounts under
section 5000C and has made a deposit
of the amounts under § 1.5000C–3(b),
the contracting party may claim a
refund of the amount overwithheld
pursuant to the procedures described in
chapter 65. The contracting party’s
claim for refund must meet the
requirements of section 6402 and the
regulations thereunder, as applicable,
and must be filed before the expiration
of the period of limitations on refund in
section 6511 and the regulations
thereunder. In general, the contracting
party making a refund claim must file
the required return to claim a refund,
stating the grounds upon which the
claim is based. A Section 5000C
Certificate and a copy of the Form 1042–
S received from the acquiring agency
must be attached to the required return.
For purposes of this section, an amount

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is overwithheld if the amount withheld
from the payment pursuant to section
5000C and §§ 1.5000C–1 through
1.5000C–7 exceeds the contracting
party’s tax liability under § 1.5000C–1,
regardless of whether the
overwithholding was in error or
appeared correct when it occurred. A
U.S. person may seek a refund under
this paragraph (e) even if it was treated
as a foreign person under the rules in
§ 1.5000C–2 (for example, because it
neither had a taxpayer identification
number on file in the System for Award
Management nor submitted Form W–9,
‘‘Request for Taxpayer Identification
Number (TIN) and Certification,’’ to the
acquiring agency).
§ 1.5000C–5

Anti-abuse rule.

If a foreign person engages in a
transaction (or series of transactions)
with a principal purpose of avoiding the
tax imposed under section 5000C, the
transaction (or series of transactions)
may be disregarded or the arrangement
may be recharacterized (including
disregarding an intermediate entity), in
accordance with its substance. If this
section applies, the foreign person
remains liable for any tax (including any
tax obligation unsatisfied as a result of
underwithholding) and the Internal
Revenue Service retains all other rights
and remedies under any applicable law
available to collect any tax imposed on
the foreign contracting party by section
5000C.

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§ 1.5000C–6

Examples.

The rules of §§ 1.5000C–1 through
1.5000C–4 are illustrated by the
following examples. For purposes of the
examples: All contracts are executed
with acquiring agencies on or after
January 2, 2011, and are for the
provision of either goods or services;
none of the exemptions described in
§ 1.5000C–1(d) apply, unless otherwise
explicitly stated; the acquiring agencies
have no other withholding obligations
under chapter 3 of the Code and have
no other contracts subject to section
5000C; the foreign contracting parties do
not have any U.S. source income or a
U.S. tax return filing obligation other
than a tax return filing obligation that
arises based on the facts described in
the particular example; and none of the
contracts are classified or confidential
contracts as described in section
6050M(e)(3).
Example 1. U.S. person not subject to tax;
no withholding. (i) Facts. Company A Inc., a
domestic corporation and the contracting
party, enters into a contract with Agency L,
the acquiring agency. Before making its first
payment under the contract (for example, on
the date of execution of the contract),

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pursuant to the first step in § 1.5000C–2(b),
Agency L determines that the contract will be
for services. Under the second step, Agency
L reviews Company A Inc.’s record in the
System for Award Management (SAM) and
determines that Company A is a corporation
and is considered to be a U.S. person because
Agency L’s records demonstrate that
Company A Inc. is a business entity treated
as a corporation for tax purposes that has a
TIN that does not begin with ‘‘98.’’
(ii) Analysis. Company A Inc. is a U.S.
person and thus is not subject to the tax
under section 5000C. Moreover, because
Company A Inc. is a corporation for tax
purposes that has a TIN that does not begin
with ‘‘98,’’ Agency L is able to determine that
it has no obligation to withhold any amounts
under section 5000C on the payment made to
Company A Inc. For purposes of section
5000C, Company A Inc. could also establish
that it is a U.S. person by providing a Form
W–9, ‘‘Request for Taxpayer Identification
Number (TIN) and Certification,’’ to Agency
L. Company A Inc. does not need to file a
Section 5000C Certificate to demonstrate its
eligibility for an exemption from
withholding.
Example 2. Foreign national entitled to the
benefit of a nondiscrimination provision of a
treaty; no withholding. (i) Facts. Company B,
a foreign contracting party and a national of
Country T, provides goods to Agency M, the
acquiring agency. Company B determines
that it is exempt from tax under section
5000C because it is entitled to the benefit of
the nondiscrimination article of a qualified
income tax treaty between the United States
and Country T. Company B submits a Section
5000C Certificate to Agency M when the
contract is executed. Company B uses Form
W–14, ‘‘Certificate of Foreign Contracting
Party Receiving Federal Procurement
Payments,’’ and properly fills the relevant
sections stating the name of the treaty, the
specific article relied upon, and the basis on
which it is entitled to the benefits of that
article. Following the steps in § 1.5000C–2,
Agency M determines that the
nondiscrimination provision of the Country
T-United States income tax treaty applies to
exempt Company B from the tax imposed
under section 5000C. Agency M makes one
lump sum payment of $50 million to
Company B pursuant to the contract.
(ii) Analysis. Company B has no liability
for tax under section 5000C because it is
entitled to the benefit of a nondiscrimination
article of a qualified income tax treaty.
Because Company B submitted a Section
5000C Certificate meeting the requirements
in § 1.5000C–2 and Agency M does not have
reason to know that the submitted
information is incorrect or unreliable,
Agency M is not required to withhold under
section 5000C. Agency M must retain the
Section 5000C Certificate for at least three
years pursuant to § 1.5000C–3(c)(1) from the
due date for the Form 1042 (if it were
required).
Example 3. Foreign treaty beneficiary does
not submit Section 5000C Certificate;
withholding required. (i) Facts. The facts are
the same as in Example 2, except that
Company B does not submit a Section 5000C
Certificate to Agency M before Agency M
makes the $50 million payment.

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(ii) Analysis. Company B is not subject to
tax under section 5000C, but Agency M must
nevertheless withhold on the payment made
to Company B because Agency M did not
receive a Section 5000C Certificate from
Company B in the time and manner required
pursuant to § 1.5000C–2(d). Agency M must
withhold $1 million (2 percent of $50
million) on the payment, and deposit that
amount under the rules in § 1.5000C–3 no
later than the 15th day of the month
following the month in which the payment
was made. Agency M must also complete
Forms 1042, ‘‘Annual Withholding Tax
Return for U.S. Source Income of Foreign
Persons,’’ and 1042–S, ‘‘Foreign Person’s U.S.
Source Income Subject to Withholding,’’ on
or before the date specified on those forms
and the accompanying instructions. Agency
M must furnish copies of Form 1042–S to
Company B. Agency M must retain a copy of
the Form 1042 and the Form 1042–S for 3
years from the due date for the Form 1042
pursuant to § 1.5000C–3(c)(1). As Company B
is not liable for the tax, it may later file a
claim for refund pursuant to the procedures
described in chapter 65.
Example 4. Foreign contracting party
partially exempt from tax under section
5000C when goods are manufactured in
different countries. (i) Facts. Company C, a
foreign contracting party, provides goods to
Agency N in 2015. The terms of the contract
require that payment be made to Company C
by Agency N in two $5 million installments
in 2015. Company C has a TIN that begins
with ‘‘98’’ and is not entitled to relief
pursuant to an international agreement with
the United States, such as relief pursuant to
a nondiscrimination provision of a qualified
income tax treaty. Some of the goods are
manufactured in Country R, which is a party
to an international procurement agreement
with the United States, with the remainder
being manufactured in Country S, a country
that is not a party to an international
procurement agreement with the United
States. Company C uses a reasonable
allocation method based on the information
available to it at the time in accordance with
§ 1.5000C–1(e)(3) to estimate that $3 million
is the nonexempt amount that is allocated to
the goods produced in Country S. Company
C submits a valid and complete Section
5000C Certificate to Agency N in the time
and manner required by §§ 1.5000C–1
through 1.5000C–7 that provides that the
nonexempt amount is $3 million. In 2015,
Agency N pays Company C in two
installments pursuant to the terms of the
contract.
(ii) Analysis. Using a reasonable allocation
method to determine the estimated
nonexempt amount, Company C determines
that pursuant to section 5000C and
§§ 1.5000C–1 through 1.5000C–7, tax of
$30,000 (2 percent of the $5 million payment,
or $100,000 multiplied by a fraction, the
numerator of which is the estimated
nonexempt amount, $3 million, and the
denominator of which is the estimated total
contract price, or $10 million) is imposed on
each payment made to Company C. Because
Company C has timely submitted a Section
5000C Certificate explaining the basis for this
allocation, Agency N withholds $30,000 on

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each payment made to Company C. Agency
N must deposit each $30,000 withholding tax
under the rules in § 1.5000C–3 no later than
the 15th day of the month following the
month in which each payment is made.
Agency N must also complete Forms 1042
and 1042–S and furnish copies of Form
1042–S to Company C. Agency N must retain
a copy of the Form 1042 and the Form 1042–
S for at least three years from the due date
for the Form 1042 pursuant to § 1.5000C–
3(c)(1). Provided that Agency N properly
withholds on the nonexempt portion as
required under section 5000C and
§§ 1.5000C–1 through 1.5000C–7 and that
Company C’s estimate of the nonexempt
amount is the actual nonexempt amount,
Company C does not have an additional tax
liability or a U.S. tax return filing obligation
as a result of receiving the payments.
Example 5. Foreign contracting party liable
for additional tax under Section 5000C not
fully withheld upon due to errors on the
Section 5000C Certificate. (i) Facts. The facts
are the same as in Example 4, except that the
Section 5000C Certificate submitted to
Agency N by Company C erroneously
provides that the estimated nonexempt
amount is $1.5 million instead of $3 million.
As a result, Agency N only withholds
$15,000 (2 percent of the $5 million payment
multiplied by a fraction (the numerator of
which is the estimated nonexempt amount
stated on the Section 5000C Certificate, $1.5
million, and the denominator of which is the
estimated total contract price, or $10
million)) on each payment made to Company
C. Agency N neither discovered nor had
reason to know that the information on the
Section 5000C Certificate was incorrect or
unreliable. After both payments have been
made and after the filing due date for Form
1042 for 2015, Company C determines that
the estimated nonexempt amount should
have been stated as $3 million on the Section
5000C Certificate.
(ii) Analysis. The tax imposed under
section 5000C on Company C as a result of
the receipt of specified Federal procurement
payments is $60,000 and this amount has not
been fully satisfied by withholding by
Agency N. Accordingly, Company C must
remit additional tax of $30,000 ($60,000 tax
liability less $30,000 amounts already
withheld by Agency N) and file its required
return, a Form 1120–F, ‘‘U.S. Income Tax
Return of a Foreign Corporation,’’ for 2015 to
report this tax liability, as required by
§ 1.5000C–4. Company C must explain its
corrected allocation method in its Form
1120–F. Company C must also attach a copy
of the Form 1042–S it received from Agency
N to Form 1120–F.
Example 6. Foreign contracting party
submits revised Section 5000C Certificate
due to change in circumstances. (i) Facts.
The facts are the same as in Example 4,
except that, after the first payment, Company
C changes its business so that all of the goods
manufactured with respect to the second
payment are manufactured in Country R.
Prior to the second payment, Company C
submits a revised Section 5000C Certificate
indicating this change in circumstance
pursuant to § 1.5000C–2(d)(6).
(ii) Analysis. Agency N withholds $30,000
on the first payment made to Company C and

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does not withhold on the second payment.
Company C does not have an additional tax
liability or a U.S. tax return filing obligation
as a result of receiving the payments.
§ 1.5000C–7

Effective/applicability date.

Section 5000C applies to specified
Federal procurement payments received
pursuant to contracts entered into on
and after January 2, 2011. Sections
1.5000C–1 through 1.5000C–7 apply on
and after November 16, 2016.
Contracting parties and acquiring
agencies may rely upon the rules in the
regulations before such date. If a foreign
contracting party fully satisfies its tax
and filing obligations under section
5000C with respect to any payments
received in tax years ending before
November 16, 2016 on or before the
later of November 16, 2016 or the due
date for the foreign person’s income tax
return for the year in which the
payment was received in a manner
consistent with the final regulations,
penalties will not be asserted on the
foreign contracting parties with respect
to those payments or returns.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 5. The authority citation for part
301 continues to read in part as follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 6. Section 301.6114–1 is
amended by adding paragraph (c)(1)(ix)
and revising paragraph (e) to read as
follows:

■

§ 301.6114–1
positions.

Treaty-based return

*

*
*
*
*
(c) * * *
(1) * * *
(ix) Notwithstanding paragraph (b)(1)
of this section, that a nondiscrimination
provision of a qualified income tax
treaty, as defined in Treas. Reg.
§ 1.5000C–1(c)(13), exempts a payment
from tax under section 5000C, but only
if the foreign person claiming such relief
has provided a Section 5000C Certificate
(such as Form W–14, ‘‘Certificate of
Foreign Contracting Party Receiving
Federal Procurement Payments’’) to the
acquiring agency in accordance with
section 5000C and the regulations
thereunder.
*
*
*
*
*
(e) Effective/applicability date—(1) In
general. This section is effective for
taxable years of the taxpayer for which
the due date for filing returns (without
extensions) occurs after December 31,
1988. However, if—
(i) A taxpayer has filed a return for
such a taxable year, without complying

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with the reporting requirement of this
section, before November 13, 1989, or
(ii) A taxpayer is not otherwise than
by paragraph (a) of this section required
to file a return for a taxable year before
November 13, 1989, such taxpayer must
file (apart from any earlier filed return)
the statement required by paragraph (d)
of this section before June 12, 1990, by
mailing the required statement to the
Internal Revenue Service, P.O. Box
21086, Philadelphia, PA 19114. Any
such statement filed apart from a return
must be dated, signed and sworn to by
the taxpayer under the penalties of
perjury. In addition, with respect to any
return due (without extensions) on or
before March 10, 1990, the reporting
required by paragraph (a) of this section
must be made no later than June 12,
1990. If a taxpayer files or has filed a
return on or before November 13, 1989,
that provides substantially the same
information required by paragraph (d) of
this section, no additional submission
will be required. Foreign insurers and
reinsurers subject to reporting described
in paragraph (c)(7)(ii) of this section
must so report for calendar years 1988
and 1989 no later than August 15, 1990.
(2) Section 5000C. Paragraph (c)(1)(ix)
of this section applies to payments
made on and after November 16, 2016
pursuant to contracts entered into on
and after January 2, 2011. However, a
taxpayer that receives payments exempt
from tax under section 5000C by reason
of a qualified income tax treaty before
November 16, 2016 is not required to
disclose this position on Form 8833,
provided it has properly relied on
Notice 2015–35, I.R.B. 2016–14, 533, in
claiming the exemption.
*
*
*
*
*
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 7. The authority citation for part
602 continues to read in part as follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 8. In § 602.101, paragraph (b) is
amended by adding entries in numerical
order to the table to read as follows:

■

§ 602.101

*

OMB Control numbers.

*
*
(b) * * *

*

*

CFR part or section where
identified and described

Current
OMB
control No.

*
*
*
*
*
1.5000C–2 .................................. 1545–0096
1545–2263
1.5000C–3 .................................. 1545–0096
1545–2263

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CFR part or section where
identified and described

Current
OMB
control No.

1.5000C–4 ..................................

1545–1223
1545–0074

*

*

*

*

*

John M. Dalrymple,
Deputy Commissioner for Services and
Enforcement.
Approved: July 22, 2016.
Mark D. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2016–19452 Filed 8–17–16; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket No. USCG–2016–6017]
RIN 1625–AA00

Safety Zone; Tall Ships Duluth 2016—
Giant Duck, Lake Superior, Duluth, MN
Coast Guard, DHS.
Temporary final rule.

AGENCY:
ACTION:

The Coast Guard is
establishing a safety zone around the
Giant Duck barge and its corresponding
tug during the Tall Ships Duluth 2016
parade of sail in Lake Superior near
Duluth, MN. This safety zone will
provide for the regulation of vessel
traffic in the vicinity of the tow in the
navigable waters of the United States.
This safety zone is necessary to
safeguard participants and spectators
from the hazards associated with the
limited maneuverability of a barge and
tow. Entry of vessels or persons into this
zone is prohibited unless specifically
authorized by the Captain of the Port
Duluth.
DATES: This rule is effective from 8 a.m.
through 8 p.m. August 18, 2016.
ADDRESSES: To view documents
mentioned in this preamble as being
available in the docket, go to http://
www.regulations.gov, type USCG–2016–
6017 in the ‘‘SEARCH’’ box and click
‘‘SEARCH.’’ Click on Open Docket
Folder on the line associated with this
rule.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this rule, call or
email Lieutenant Junior Grade John
Mack, Waterways management, MSU
Duluth, Coast Guard; telephone 218–
725–3818, email [email protected].

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SUMMARY:

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SUPPLEMENTARY INFORMATION:

I. Table of Abbreviations
CFR Code of Federal Regulations
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
§ Section
U.S.C. United States Code

II. Background Information and
Regulatory History
The Coast Guard is issuing this
temporary rule without prior notice and
opportunity to comment pursuant to
authority under section 4(a) of the
Administrative Procedure Act (APA) (5
U.S.C. 553(b)). This provision
authorizes an agency to issue a rule
without prior notice and opportunity to
comment when the agency for good
cause finds that those procedures are
‘‘impracticable, unnecessary, or contrary
to the public interest.’’ Under 5 U.S.C.
553(b)(B), the Coast Guard finds that
good cause exists for not publishing a
notice of proposed rulemaking (NPRM)
with respect to this rule because doing
so would be impracticable and contrary
to the public interest. Because the event
is scheduled for August 18, 2016, there
is insufficient time to accommodate the
comment period. Thus, delaying the
effective date of this rule to wait for the
comment period to run would be both
impracticable and contrary to public
interest because it would inhibit the
Coast Guard’s ability to protect
spectators and vessels from the hazards
associated with the event.
We are issuing this rule, and under 5
U.S.C. 553(d)(3), the Coast Guard finds
that good cause exists for making it
effective less than 30 days after
publication in the Federal Register.
Delaying the effective date of this rule
would be contrary to public interest as
it would inhibit the Coast Guard’s
ability to protect spectators and vessels
from the hazards associated with the
event.
III. Legal Authority and Need for Rule
The Coast Guard is issuing this rule
under authority in 33 U.S.C. 1231. The
Captain of the Port Duluth (COTP) has
determined that potential hazards
associated with the Giant Duck tow
operating in crowded harbors in close
proximity to spectator craft necessitate a
safety zone. The purpose of this rule is
to ensure the safety of all vessels during
the Tall Ship event in Duluth, MN.
IV. Discussion of the Rule
This rule establishes a safety zone
from 8 a.m. through 8 p.m. August 18,
2016. The safety zone will cover all
navigable waters within 100 yards of the
Giant Duck and its corresponding tug

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during the Tall Ships event in Duluth,
MN. The duration of the zone is
intended to protect personnel, vessels,
and the marine environment in these
navigable waters during the event. No
vessel or person will be permitted to
enter the safety zone without obtaining
permission from the COTP or a
designated representative.
V. Regulatory Analyses
We developed this rule after
considering numerous statutes and
Executive order related to rulemaking.
Below we summarize our analyses
based on a number of these statutes and
Executive orders, and we discuss First
Amendment rights of protestors.
A. Regulatory Planning and Review
Executive Orders 12866 and 13563
direct agencies to assess the costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits.
Executive Order 13563 emphasizes the
importance of quantifying both costs
and benefits, of reducing costs, of
harmonizing rules, and of promoting
flexibility. This rule has not been
designated a ‘‘significant regulatory
action,’’ under Executive Order 12866.
Accordingly, it has not been reviewed
by the Office of Management and
Budget.
This regulatory action determination
is based on the size, location, duration,
and time-of-year of the safety zone.
Vessel traffic will be able to safely
transit around this safety zone which
will impact a small designated area of
Lake Superior near Duluth, MN.
Moreover, the Coast Guard will issue
Broadcast Notice to Mariners via VHF–
FM marine channel 16 about the zone
and the rule allows vessels to seek
permission to enter the zone.
B. Impact on Small Entities
The Regulatory Flexibility Act of
1980, 5 U.S.C. 601–612, as amended,
requires Federal agencies to consider
the potential impact of regulations on
small entities during rulemaking. The
term ‘‘small entities’’ comprises small
businesses, not-for-profit organizations
that are independently owned and
operated and are not dominant in their
fields, and governmental jurisdictions
with populations of less than 50,000.
The Coast Guard certifies under 5 U.S.C.
605(b) that this rule will not have a
significant economic impact on a
substantial number of small entities.
While some owners or operators of
vessels intending to transit the safety
zone may be small entities, for the
reasons stated in section V.A above, this

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