80 FR 38309 - Federal Acquisition Regulation; Prohibition on Contracting With Inverted Domestic Corporations

DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

Federal Register Volume 80, Issue 127 (July 2, 2015)

Page Range		38309-38310
FR Document		2015-16215

DoD, GSA, and NASA have adopted as final, without change, an interim rule amending the Federal Acquisition Regulation (FAR) to address the continuing Governmentwide statutory prohibition on the use of appropriated (or otherwise made available) funds for contracts with any foreign incorporated entity that is an inverted domestic corporation or any subsidiary of such entity.

Federal Register, Volume 80 Issue 127 (Thursday, July 2, 2015)

[Federal Register Volume 80, Number 127 (Thursday, July 2, 2015)]
[Rules and Regulations]
[Pages 38309-38310]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-16215]


-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 9 and 52

[FAC 2005-83; FAR Case 2014-017; Item V; Docket No. 2014-0017, Sequence 
No. 1]
RIN 9000-AM70


Federal Acquisition Regulation; Prohibition on Contracting With 
Inverted Domestic Corporations

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: DoD, GSA, and NASA have adopted as final, without change, an 
interim rule amending the Federal Acquisition Regulation (FAR) to 
address the continuing Governmentwide statutory prohibition on the use 
of appropriated (or otherwise made available) funds for contracts with 
any foreign incorporated entity that is an inverted domestic 
corporation or any subsidiary of such entity.

DATES: Effective: July 2, 2015.

FOR FURTHER INFORMATION CONTACT: Mr. Michael O. Jackson, Procurement 
Analyst, at 202-208-4949 for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAC 2005-83, FAR Case 2014-
017.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA published an interim rule in the Federal 
Register at 79 FR 74554 on December 15, 2014, to address the continuing 
Governmentwide statutory prohibition (in effect through annual 
appropriations acts since Fiscal Year 2008) on the use of appropriated 
(or otherwise made available) funds for contracts with any foreign 
incorporated entity that is an inverted domestic corporation (under 
section 835 of the Homeland Security Act of 2002, codified at 6 U.S.C. 
395) or to any subsidiary of such entity. One respondent submitted 
comments in response to the interim rule.

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the public comments in the 
development of the final rule.

A. Summary of Significant Changes

    There were no changes made to the rule as a result of the comments 
received. There were no comments on the Regulatory Flexibility Act.

B. Analysis of Comments

    A discussion of the comments follows:
1. Deletion of References to the Specific Fiscal Years
    Comment: The respondent does not favor the deletion of references 
to the specific fiscal years covered in several subsections of FAR 
9.108. The respondent states that the interim rule obscures the fact 
that the restrictions on contracting with inverted domestic 
corporations are fiscal year specific, and that those restrictions may 
or may not be enacted in future years. The respondent states that the 
interim rule now provides only a general description of the common 
exception language. The respondent recommends--

[[Page 38310]]

    [cir] Specifically listing the covered fiscal years in the 
prohibition at FAR 9.108-2(a), the requirement for representation at 
9.108-3, and the solicitation provision and contract clause 
prescriptions at 9.108-5; and
    [cir] A separate listing at FAR 9.108-2(b) for the statutory 
exception for each fiscal year, e.g., for fiscal year 2008 ``This 
prohibition does not apply when using Fiscal Year 2008 funds for any 
contract entered into before December 26, 2007, or for any order issued 
pursuant to such contract.'' (This exception was then repeated for each 
fiscal year, inserting the date of enactment of the act).
    Response: Insofar as Congress has retained the Governmentwide 
statutory prohibition in place since Fiscal Year 2008, this interim 
rule amended FAR 9.108-2, 9.108-3, and 9.108-5 to reflect the ongoing 
nature of the prohibition for as long as Congress extends the 
prohibition in its current form through subsequent appropriations 
action (in full-year appropriations acts and in short-term and full-
year CRs).
    [cir] Because this prohibition is enacted in annual appropriations 
acts, the prior format of the regulation (listing all fiscal years) 
required annual update of the FAR to keep adding new fiscal years. Due 
to the required rulemaking process, this necessitated a substantial lag 
between enactment of the annual appropriations act and incorporation of 
the current fiscal year in the regulations. With the new approach in 
the interim rule, the FAR will only require revision if the 
requirements of the new appropriations act change. The prohibition at 
FAR 9.108-2 does make clear that the prohibition arises from section 
745 of Division D of the Consolidated Appropriations Act, 2008 (Pub. L. 
110-161) and its successor provisions in subsequent appropriations acts 
(and as extended in continuing resolutions). The Councils review the 
new appropriations act every year, and will take action to change the 
FAR if there is a change in the prohibition.
    [cir] The interim rule provides an exact repetition of the common 
statutory exception language. Since the exception in each 
appropriations act is the same, the interim rule states the exception 
once: i.e., ``Section 745 and its successor provisions include the 
following exception: This section shall not apply to any Federal 
Government contract entered into before the date of enactment of this 
Act, or to any task order issued pursuant to such contract.'' Listing 
of each fiscal year exception separately was becoming repetitive and 
cumbersome. Whether the exception is listed separately for each fiscal 
year, or is just stated once, seeking legal counsel is recommended if a 
contractor, during contract performance, becomes an inverted domestic 
corporation or a subsidiary of one.
2. Recommended Minimum Change
    Comment: The respondent recommended, at a minimum, that language 
should be added at FAR 9.108-3 and 9.108-5 to limit applicability to 
``fiscal periods for which Congress has enacted the prohibition 
described in Section 9.108-2(a) above'' and ``When using appropriated 
funds from fiscal years for which Congress has enacted the prohibition 
described in section 9.108-2(a) above,'' respectively. Although this 
approach resolves the issue of requiring annual updates to the 
regulations, it imposes a burden on the many thousands of contracting 
officers to determine for which fiscal periods Congress has enacted the 
prohibitions.
    Response: The Councils have determined that this prohibition has 
been continuously applicable since FY 2008. As listed in the Federal 
Register, this required a review of 25 statutes. Not many FAR users 
will know which funds are tied to this restriction without further 
research. A contracting officer would not know whether to include the 
solicitation provision and contract clause without researching the 
appropriations act that appropriated the funds being used. It is more 
efficient for the Councils to make that determination, and ensure that 
the regulations appropriately reflect the requirement, without 
necessitating research by every contracting officer in the Federal 
Government.

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA certify that this rule will not have a 
significant economic impact on a substantial number of small entities 
within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et 
seq., because this rule will only impact an offeror that is an inverted 
domestic corporation or a subsidiary of an inverted domestic 
corporation and wants to do business with the Government. The number of 
small entities impacted by this rule will be minimal. Small business 
concerns are unlikely to have been incorporated in the United States 
(or, if a partnership, established in the United States) and then 
subsequently incorporated in a foreign country; the major participants 
in these transactions are reportedly large multinational corporations. 
For the definition of ``small business'', the Regulatory Flexibility 
Act refers to the Small Business Act, which in turn allows the U.S. 
Small Business Administration (SBA) Administrator to specify detailed 
definitions or standards (5 U.S.C. 601(3) and 15 U.S.C. 632(a)). The 
SBA regulations at 13 CFR 121.105 discuss who is a small business: 
``(a)(1) Except for small agricultural cooperatives, a business concern 
eligible for assistance from SBA as a small business is a business 
entity organized for profit, with a place of business located in the 
United States, and which operates primarily within the United States or 
which makes a significant contribution to the U.S. economy through 
payment of taxes or use of American products, materials or labor''.

V. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. Chapter 35).

List of Subjects in 48 CFR Parts 9 and 52

    Government procurement.

    Dated: June 18, 2015.
William Clark,
Director, Office of Government-wide Acquisition Policy, Office of 
Acquisition Policy, Office of Government-wide Policy.

Interim Rule Adopted as Final Without Change

    Accordingly, the interim rule amending 48 CFR parts 9 and 52, which 
was published in the Federal Register at 79 FR 74554 on December 15, 
2014, is adopted as a final rule without change.

[FR Doc. 2015-16215 Filed 7-1-15; 8:45 am]
 BILLING CODE 6820-EP-P

Federal Register / Vol. 80, No. 127 / Thursday, July 2, 2015 / Rules and Regulations 38309

Review, dated September 30, 1993. This ■ e. Revising the newly designated statutory prohibition on the use of
rule is not a major rule under 5 U.S.C. paragraph (d)(3). appropriated (or otherwise made
804. The revisions and addition read as available) funds for contracts with any
follows: foreign incorporated entity that is an
IV. Regulatory Flexibility Act
inverted domestic corporation or any
DoD, GSA, and NASA have prepared 6.302–2 Unusual and compelling urgency.
subsidiary of such entity.
a Final Regulatory Flexibility Analysis * * * * *
DATES: Effective: July 2, 2015.
(FRFA) consistent with the Regulatory (d) * * *
(1) * * * FOR FURTHER INFORMATION CONTACT: Mr.
Flexibility Act, 5 U.S.C. 601, et seq. The
FRFA is summarized as follows: (ii) May not exceed one year, Michael O. Jackson, Procurement
including all options, unless the head of Analyst, at 202–208–4949 for
The purpose of this rule is to clarify that clarification of content. For information
the agency determines that exceptional
a determination of exceptional circumstances pertaining to status or publication
is needed when the period of performance, circumstances apply. This
inclusive of options and modifications, of a determination must be documented in schedules, contact the Regulatory
noncompetitive contract awarded on the the contract file. Secretariat at 202–501–4755. Please cite
basis of unusual and compelling urgency is (2)(i) Any subsequent modification FAC 2005–83, FAR Case 2014–017.
greater than one year. This rule only impacts using this authority, which will extend SUPPLEMENTARY INFORMATION:
the internal procedures of the Federal the period of performance beyond one
Government. year under this same authority, requires I. Background
There are no recordkeeping, reporting, or a separate determination. This DoD, GSA, and NASA published an
other compliance requirements associated determination is only required if the interim rule in the Federal Register at
with the rule. The rule does not duplicate,
overlap, or conflict with any other Federal
cumulative period of performance using 79 FR 74554 on December 15, 2014, to
rules. this authority exceeds one year. This address the continuing
No issues were raised by the public requirement does not apply to the Governmentwide statutory prohibition
comments in response to the initial exercise of options previously addressed (in effect through annual appropriations
regulatory flexibility analysis. in the determination required at acts since Fiscal Year 2008) on the use
Interested parties may obtain a copy (d)(1)(ii) of this section. of appropriated (or otherwise made
of the FRFA from the Regulatory (ii) The determination shall be available) funds for contracts with any
Secretariat. The Regulatory Secretariat approved at the same level as the level foreign incorporated entity that is an
has submitted a copy of the FRFA to the to which the agency head authority in inverted domestic corporation (under
Chief Counsel for Advocacy of the Small (d)(1)(ii) of this section is delegated. section 835 of the Homeland Security
(3) The requirements in paragraphs Act of 2002, codified at 6 U.S.C. 395) or
Business Administration.
(d)(1) and (d)(2) of this section shall to any subsidiary of such entity. One
V. Paperwork Reduction Act apply to any contract in an amount respondent submitted comments in
The rule does not contain any greater than the simplified acquisition response to the interim rule.
information collection requirements that threshold.
II. Discussion and Analysis
require the approval of the Office of * * * * *
Management and Budget under the [FR Doc. 2015–16210 Filed 7–1–15; 8:45 am] The Civilian Agency Acquisition
Paperwork Reduction Act (44 U.S.C. BILLING CODE 6820–EP–P Council and the Defense Acquisition
chapter 35). Regulations Council (the Councils)
reviewed the public comments in the
List of Subject in CFR Part 6 DEPARTMENT OF DEFENSE development of the final rule.
Government procurement. A. Summary of Significant Changes
GENERAL SERVICES
Dated: June 18, 2015. ADMINISTRATION There were no changes made to the
William Clark, rule as a result of the comments
Director, Office of Government-wide NATIONAL AERONAUTICS AND received. There were no comments on
Acquisition Policy, Office of Acquisition SPACE ADMINISTRATION the Regulatory Flexibility Act.
Policy, Office of Government-wide Policy.
Therefore, DoD, GSA, and NASA 48 CFR Parts 9 and 52 B. Analysis of Comments
amend 48 CFR part 6 as set forth below: [FAC 2005–83; FAR Case 2014–017; Item A discussion of the comments
V; Docket No. 2014–0017, Sequence No. 1] follows:
PART 6—COMPETITION
REQUIREMENTS RIN 9000–AM70 1. Deletion of References to the Specific
Fiscal Years
■ 1. The authority citation for 48 CFR Federal Acquisition Regulation; Comment: The respondent does not
part 6 continues to read as follows: Prohibition on Contracting With favor the deletion of references to the
Authority: 40 U.S.C. 121(c); 10 U.S.C. Inverted Domestic Corporations specific fiscal years covered in several
chapter 137; and 51 U.S.C. 20113. AGENCY: Department of Defense (DoD), subsections of FAR 9.108. The
■ 2. Amend section 6.302–2 by— General Services Administration (GSA), respondent states that the interim rule
■ a. Removing from paragraph (d)(1) and National Aeronautics and Space obscures the fact that the restrictions on
asabaliauskas on DSK5VPTVN1PROD with RULES

‘‘contract awarded’’ and adding Administration (NASA). contracting with inverted domestic
‘‘contract awarded or modified’’ in its ACTION: Final rule. corporations are fiscal year specific, and
place; that those restrictions may or may not
■ b. Revising paragraph (d)(1)(ii); SUMMARY: DoD, GSA, and NASA have be enacted in future years. The
■ c. Redesignating paragraphs (d)(2) adopted as final, without change, an respondent states that the interim rule
through (d)(4) as paragraphs (d)(3) interim rule amending the Federal now provides only a general description
through (d)(5), respectively; Acquisition Regulation (FAR) to address of the common exception language. The
■ d. Adding a new paragraph (d)(2); and the continuing Governmentwide respondent recommends—

VerDate Sep<11>2014 21:24 Jul 01, 2015 Jkt 235001 PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 E:\FR\FM\02JYR3.SGM 02JYR3

38310 Federal Register / Vol. 80, No. 127 / Thursday, July 2, 2015 / Rules and Regulations

Æ Specifically listing the covered is just stated once, seeking legal counsel IV. Regulatory Flexibility Act
fiscal years in the prohibition at FAR is recommended if a contractor, during DoD, GSA, and NASA certify that this
9.108–2(a), the requirement for contract performance, becomes an rule will not have a significant
representation at 9.108–3, and the inverted domestic corporation or a economic impact on a substantial
solicitation provision and contract subsidiary of one. number of small entities within the
clause prescriptions at 9.108–5; and meaning of the Regulatory Flexibility
Æ A separate listing at FAR 9.108–2(b) 2. Recommended Minimum Change
Act, 5 U.S.C. 601, et seq., because this
for the statutory exception for each rule will only impact an offeror that is
fiscal year, e.g., for fiscal year 2008 Comment: The respondent
recommended, at a minimum, that an inverted domestic corporation or a
‘‘This prohibition does not apply when subsidiary of an inverted domestic
using Fiscal Year 2008 funds for any language should be added at FAR
9.108–3 and 9.108–5 to limit corporation and wants to do business
contract entered into before December with the Government. The number of
26, 2007, or for any order issued applicability to ‘‘fiscal periods for
which Congress has enacted the small entities impacted by this rule will
pursuant to such contract.’’ (This
prohibition described in Section 9.108– be minimal. Small business concerns
exception was then repeated for each
2(a) above’’ and ‘‘When using are unlikely to have been incorporated
fiscal year, inserting the date of
appropriated funds from fiscal years for in the United States (or, if a partnership,
enactment of the act).
Response: Insofar as Congress has which Congress has enacted the established in the United States) and
retained the Governmentwide statutory prohibition described in section 9.108– then subsequently incorporated in a
prohibition in place since Fiscal Year foreign country; the major participants
2(a) above,’’ respectively. Although this
2008, this interim rule amended FAR in these transactions are reportedly large
approach resolves the issue of requiring
9.108–2, 9.108–3, and 9.108–5 to reflect multinational corporations. For the
annual updates to the regulations, it
the ongoing nature of the prohibition for definition of ‘‘small business’’, the
imposes a burden on the many
as long as Congress extends the Regulatory Flexibility Act refers to the
thousands of contracting officers to
prohibition in its current form through Small Business Act, which in turn
determine for which fiscal periods allows the U.S. Small Business
subsequent appropriations action (in Congress has enacted the prohibitions.
full-year appropriations acts and in Administration (SBA) Administrator to
short-term and full-year CRs). Response: The Councils have specify detailed definitions or standards
Æ Because this prohibition is enacted determined that this prohibition has (5 U.S.C. 601(3) and 15 U.S.C. 632(a)).
in annual appropriations acts, the prior been continuously applicable since FY The SBA regulations at 13 CFR 121.105
format of the regulation (listing all fiscal 2008. As listed in the Federal Register, discuss who is a small business: ‘‘(a)(1)
years) required annual update of the this required a review of 25 statutes. Not Except for small agricultural
FAR to keep adding new fiscal years. many FAR users will know which funds cooperatives, a business concern eligible
Due to the required rulemaking process, are tied to this restriction without for assistance from SBA as a small
this necessitated a substantial lag further research. A contracting officer business is a business entity organized
between enactment of the annual would not know whether to include the for profit, with a place of business
appropriations act and incorporation of solicitation provision and contract located in the United States, and which
the current fiscal year in the regulations. clause without researching the operates primarily within the United
With the new approach in the interim appropriations act that appropriated the States or which makes a significant
rule, the FAR will only require revision funds being used. It is more efficient for contribution to the U.S. economy
if the requirements of the new the Councils to make that through payment of taxes or use of
appropriations act change. The determination, and ensure that the American products, materials or labor’’.
prohibition at FAR 9.108–2 does make regulations appropriately reflect the V. Paperwork Reduction Act
clear that the prohibition arises from requirement, without necessitating
section 745 of Division D of the research by every contracting officer in The rule does not contain any
Consolidated Appropriations Act, 2008 the Federal Government. information collection requirements that
(Pub. L. 110–161) and its successor require the approval of the Office of
provisions in subsequent appropriations III. Executive Orders 12866 and 13563 Management and Budget under the
acts (and as extended in continuing Paperwork Reduction Act (44 U.S.C.
Executive Orders (E.O.s) 12866 and Chapter 35).
resolutions). The Councils review the
13563 direct agencies to assess all costs
new appropriations act every year, and List of Subjects in 48 CFR Parts 9 and
will take action to change the FAR if and benefits of available regulatory
alternatives and, if regulation is 52
there is a change in the prohibition.
Æ The interim rule provides an exact necessary, to select regulatory Government procurement.
repetition of the common statutory approaches that maximize net benefits Dated: June 18, 2015.
exception language. Since the exception (including potential economic, William Clark,
in each appropriations act is the same, environmental, public health and safety Director, Office of Government-wide
the interim rule states the exception effects, distributive impacts, and Acquisition Policy, Office of Acquisition
once: i.e., ‘‘Section 745 and its successor equity). E.O. 13563 emphasizes the Policy, Office of Government-wide Policy.
provisions include the following importance of quantifying both costs
and benefits, of reducing costs, of Interim Rule Adopted as Final Without
exception: This section shall not apply Change
asabaliauskas on DSK5VPTVN1PROD with RULES

to any Federal Government contract harmonizing rules, and of promoting
entered into before the date of flexibility. This is not a significant Accordingly, the interim rule
enactment of this Act, or to any task regulatory action and, therefore, was not amending 48 CFR parts 9 and 52, which
order issued pursuant to such contract.’’ subject to review under Section 6(b) of was published in the Federal Register at
Listing of each fiscal year exception E.O. 12866, Regulatory Planning and 79 FR 74554 on December 15, 2014, is
separately was becoming repetitive and Review, dated September 30, 1993. This adopted as a final rule without change.
cumbersome. Whether the exception is rule is not a major rule under 5 U.S.C. [FR Doc. 2015–16215 Filed 7–1–15; 8:45 am]
listed separately for each fiscal year, or 804. BILLING CODE 6820–EP–P

VerDate Sep<11>2014 21:24 Jul 01, 2015 Jkt 235001 PO 00000 Frm 00020 Fmt 4701 Sfmt 9990 E:\FR\FM\02JYR3.SGM 02JYR3

Document Created: 2015-12-15 13:15:29
Document Modified: 2015-12-15 13:15:29

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Rules and Regulations
Action		Final rule.
Dates		Effective: July 2, 2015.
Contact		Mr. Michael O. Jackson, Procurement Analyst, at 202-208-4949 for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at 202-501-4755. Please cite FAC 2005-83, FAR Case 2014- 017.
FR Citation		80 FR 38309
RIN Number		9000-AM70
CFR Citation		48 CFR 52 48 CFR 9

80 FR 38309 - Federal Acquisition Regulation; Prohibition on Contracting With Inverted Domestic Corporations

DEPARTMENT OF DEFENSEGENERAL SERVICES ADMINISTRATIONNATIONAL AERONAUTICS AND SPACE ADMINISTRATION

Federal Register Volume 80, Issue 127 (July 2, 2015)

DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION