80_FR_81717 80 FR 81467 - Defense Federal Acquisition Regulation Supplement: Taxes-Foreign Contracts in Afghanistan (DFARS Case 2014-D003)

80 FR 81467 - Defense Federal Acquisition Regulation Supplement: Taxes-Foreign Contracts in Afghanistan (DFARS Case 2014-D003)

DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System

Federal Register Volume 80, Issue 250 (December 30, 2015)

Page Range81467-81470
FR Document2015-32870

DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to notify contractors of requirements relating to Afghanistan taxes for contracts performed in Afghanistan.

Federal Register, Volume 80 Issue 250 (Wednesday, December 30, 2015)
[Federal Register Volume 80, Number 250 (Wednesday, December 30, 2015)]
[Rules and Regulations]
[Pages 81467-81470]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-32870]


=======================================================================
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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 229, and 252

[Docket DARS-2014-0046]
RIN 0750-AI26


Defense Federal Acquisition Regulation Supplement: Taxes--Foreign 
Contracts in Afghanistan (DFARS Case 2014-D003)

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Final rule.

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

SUMMARY: DoD is issuing a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to notify contractors of 
requirements relating to Afghanistan taxes for contracts performed in 
Afghanistan.

DATES: Effective December 30, 2015.

FOR FURTHER INFORMATION CONTACT: Ms. Julie Hammond, telephone 571-372-
6174.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD published a proposed rule in the Federal Register at 79 FR 
35715 on June 24, 2014, to revise the DFARS to add two new clauses that 
notify contractors of requirements relating to Afghanistan taxes when 
contracts are being performed in Afghanistan. Three respondents 
submitted public comments in response to the proposed rule.

II. Discussion and Analysis

    DoD reviewed the public comments in the development of the final 
rule. A discussion of the comments is provided below:

A. Summary of Significant Changes From the Proposed Rule

    The final rule amends DFARS clause 252.229-7014, Taxes--Foreign 
Contracts in Afghanistan, to reference the bilateral security agreement 
entitled ``The Security and Defense Cooperation Agreement between the 
Islamic Republic of Afghanistan and the United States of America'' 
signed on September 30, 2014. The reference to the bilateral security 
agreement replaces the reference to the prior Agreement entered into 
between the United States and Afghanistan on May 28, 2003, regarding 
the ``Status of United States Military and Civilian Personnel of the 
U.S. Department of Defense Present in

[[Page 81468]]

Afghanistan,'' which was concluded by an exchange of diplomatic notes 
(U.S. Embassy Kabul note No. 202, dated September 26, 2002; Afghanistan 
Ministry of Foreign Affairs notes 791 and 93, dated December 12, 2002, 
and May 28, 2003, respectively). The clause is also amended to change 
``Government of the United States of America'' to the ``Department of 
Defense'' to more accurately represent the new agreement.
    The final rule also amends DFARS clause 252.229-7015, Taxes--
Foreign Contracts in Afghanistan (North Atlantic Treaty Organization 
Status of Forces Agreement), to reference the North Atlantic Treaty 
Organization (NATO) Status of Forces Agreement (SOFA) signed on 
September 30, 2014, instead of the Military Technical Agreement (MTA) 
entered into between the NATO International Security Assistance Force 
(ISAF) and Interim Administration of Afghanistan in April 2002. As a 
result of the new SOFA, the reference to the 2011 NATO ISAF Letter of 
Interpretation that modified the MTA's tax exemption is also removed, 
including the language allowing contractors to include taxes on profits 
earned by local contractors in the contract price.
    The final rule also clarifies at DFARS 212.301 that the clauses 
apply to solicitations and contracts using FAR part 12 procedures for 
the acquisition of commercial items.

B. Analysis of Public Comments

1. Taxes in Afghanistan
    Comment: A respondent commented that the Afghan Ministry of Forces 
interprets Diplomatic Note (DN) 202 to apply only to prime contractors, 
while industry practice is to treat subcontractors in Afghanistan as 
subject to taxation. The respondent asked how DoD will enforce 
paragraph (b) of DFARS clause 252.225-7014, which exempts 
subcontractors from any taxes assessed in Afghanistan in accordance 
with DN 202.
    Response: The final rule has been updated to reference the new 
bilateral security agreement between the United States and Afghanistan 
signed on September 30, 2014. Article 17.3 of the new agreement states 
that United States subcontractors shall not be liable to pay any tax 
assessed by the government of Afghanistan within the territory of 
Afghanistan on their activities under a contract or subcontract with, 
or in support of, United States Forces.
    Comment: A respondent recommended Afghan contractors not be allowed 
to include Afghan tax on profits earned from NATO ISAF contracts in 
accordance with DFARS clause 252.225-7015(d). Another respondent asked 
about DoD's expectations regarding documentation of the price markup 
for Afghan income taxes as part of the contract price and whether 
United States Government contractors will be required to refund the 
United States Government if the Afghan contractors do not owe income 
taxes due to losses.
    Response: The language that allowed contractors to include Afghan 
taxes on profits earned by local contractors in the contract price is 
removed from the final rule.
2. Bilateral Security Agreement
    Comment: A respondent commented that clarifying language is needed 
in the pending bilateral security agreement between the United States 
and Afghanistan to affirm that all non-Afghan national employees 
working on DoD contracts are tax exempt and will not be treated as 
Afghan residents.
    Response: This comment concerns the content of the bilateral 
security agreement, which is outside the scope of this rule.
    Comment: Two respondents requested that implementation of the 
proposed rule be delayed until resolution is reached between the United 
States and the Afghanistan government in a bilateral security 
agreement. If implementation of the rule is not delayed, one respondent 
requested that the proposed rule be revised to allow contracting 
officers to relieve defense contractors and subcontractors of the risks 
and responsibilities when denied a tax exemption by the Afghan Ministry 
of Finance.
    Response: A resolution has been reached between the United States 
and the Afghanistan government in a bilateral security agreement. The 
final rule has been updated to reference the new bilateral security 
agreement.
3. General
    Comment: A respondent stated that the new tax law may limit the 
amount of contractors willing to work for the United States Government 
and may hurt future business relations between Afghanistan and the 
United States.
    Response: This comment concerns Afghanistan tax law and is outside 
the scope of this rule.
    Comment: A respondent recommended that the United States Government 
reduce costs by minimizing the use of military personnel and employing 
more Afghans.
    Response: The comment is outside the scope of this rule.
    Comment: One respondent suggested that clauses, similar to those 
included in the proposed rule, be added to specifically address and 
make the rule equally applicable to local Afghan contractors, vendors, 
and landlords.
    Response: The final rule has been updated to reference the new 
bilateral security agreement. Article 17.3 of the new agreement states 
that United States contractors that are Afghan entities shall not be 
exempt from corporate profits tax that may be assessed by the 
Afghanistan government within the territory of Afghanistan on income 
received due to their status as United States contractors.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold (SAT) and for Commercial Items, Including Commercially 
Available Off-the-Shelf (COTS) Items

    This rule creates two new clauses: (1) DFARS 252.229-7014, Taxes--
Foreign Contracts in Afghanistan, and (2) DFARS 252.229-7015, Taxes--
Foreign Contracts in Afghanistan (North Atlantic Treaty Organization 
Status of Forces Agreement). The objective of the rule is to exempt DoD 
contracts performed in Afghanistan from payment liability for Afghan 
taxes pursuant to the bilateral security agreement entitled ``The 
Security and Defense Cooperation Agreement between the Islamic Republic 
of Afghanistan and the United States of America'' signed on September 
30, 2014, and the North Atlantic Treaty Organization (NATO) Status of 
Forces Agreement (SOFA) signed on September 30, 2014.
    DoD is applying these two clauses to solicitations and contracts 
below the SAT and to the acquisition of commercial items, including 
COTS items, as defined at FAR 2.101. This rule clarifies the 
application of requirements relating to treatment of taxes for 
contracts performed in Afghanistan. Not applying this guidance to 
contracts below the SAT and for the acquisition of commercial items, 
including COTS items, would exclude contracts intended to be covered by 
this rule and undermine the overarching purpose of the rule. 
Consequently, DoD is applying the rule to contracts below the SAT and 
for the acquisition of commercial items, including COTS items.

IV. 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,

[[Page 81469]]

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.

V. Regulatory Flexibility Act

    A final regulatory flexibility analysis has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
and is summarized as follows:
    DoD is amending the Defense Federal Acquisition Regulation 
Supplement (DFARS) to add two new clauses in order to notify DoD 
contractors of requirements relating to Afghanistan taxes when DoD 
contracts are being performed in Afghanistan. The clause at DFARS 
252.229-7014, Taxes-Foreign Contracts in Afghanistan, will be required 
to be included in solicitations and contracts, including solicitations 
and contracts using FAR part 12 procedures for the acquisition of 
commercial items, with performance in Afghanistan, unless the clause at 
252.229-7015 is used. The clause at DFARS 252.229-7015, Taxes-Foreign 
Contracts in Afghanistan (North Atlantic Treaty Organization Status of 
Forces Agreement), will be required to be included in all solicitations 
and contracts, including solicitations and contracts using FAR part 12 
procedures for the acquisition of commercial items, with performance in 
Afghanistan awarded on behalf of NATO, which are governed by the NATO 
Status of Forces Agreement, if approval from the Director, Defense 
Procurement and Acquisition Policy, Office of the Under Secretary of 
Defense for Acquisitions, Technology, and Logistics, is obtained prior 
to each use.
    No comments were received from the public relative to the initial 
regulatory flexibility analysis.
    DoD does not expect this proposed rule to 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 merely provides notice of the tax exemption for DoD 
contracts where performance is in Afghanistan. According to data in the 
Federal Procurement Data System, a total of thirty-five small business 
vendors received contract awards where performance was in Afghanistan 
during fiscal year 2015.
    There are no new projected reporting, recordkeeping, or other 
compliance requirements projected for this rule.
    There are no known significant alternatives to the rule. The impact 
of this rule on small business is not expected to be significant.

VI. 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 212, 229, and 252

    Government procurement.

Jennifer L. Hawes,
Editor, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 212, 229, and 252 are amended as follows:

0
1. The authority citation for 48 CFR parts 212, 229, and 252 continue 
to read as follows:

    Authority: 41 U.S.C. 1303 and CFR chapter 1.

PART 212--ACQUISITION OF COMMERCIAL ITEMS

0
2. Amend section 212.301 by--
0
a. Redesignating paragraphs (f)(xiii) through (xix) as (f)(xiv) through 
(xx); and
0
b. Adding a new paragraph (f)(xiii).
    The addition reads as follows:


212.301  Solicitation provisions and contract clauses for acquisition 
of commercial items.

* * * * *
    (f) * * *
    (xiii) Part 229--Taxes.
    (A) Use the clause at 252.229-7014, Taxes--Foreign Contracts in 
Afghanistan, as prescribed at 229.402-70(k).
    (B) Use the clause at 252.229-7015, Taxes--Foreign Contracts in 
Afghanistan (North Atlantic Treaty Organization Status of Forces 
Agreement), as prescribed at 229.402-70(l).
* * * * *

PART 229--TAXES

0
3. In section 229.402-70, revise the section heading and add new 
paragraphs (k) and (l) to read as follows:


229.402-70  Additional provisions and clauses.

* * * * *
    (k) Use the clause at 252.229-7014, Taxes--Foreign Contracts in 
Afghanistan, in solicitations and contracts, including solicitations 
and contracts using FAR part 12 procedures for the acquisition of 
commercial items, with performance in Afghanistan, unless the clause at 
252.229-7015 is used.
    (l) Use the clause at 252.229-7015, Taxes--Foreign Contracts in 
Afghanistan (North Atlantic Treaty Organization Status of Forces 
Agreement), instead of the clause at 252.229-7014, Taxes--Foreign 
Contracts in Afghanistan, in solicitations and contracts, including 
solicitations and contracts using FAR part 12 procedures for the 
acquisition of commercial items, with performance in Afghanistan 
awarded on behalf of the North Atlantic Treaty Organization (NATO), 
which are governed by the NATO Status of Forces Agreement (SOFA), if 
approval from the Director, Defense Procurement and Acquisition Policy, 
Office of the Under Secretary of Defense for Acquisition, Technology, 
and Logistics, has been obtained prior to each use.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Add sections 252.229-7014 and 252.229-7015 to read as follows:


252.229-7014  Taxes--Foreign Contracts in Afghanistan.

    As prescribed in 229.402-70(k), use the following clause:

Taxes--Foreign Contracts in Afghanistan (DEC 2015)

    (a) This acquisition is covered by the Security and Defense 
Cooperation Agreement (the Agreement) between the Islamic Republic 
of Afghanistan and the United States of America signed on September 
30, 2014, and entered into force on January 1, 2015.
    (b) The Agreement exempts the Department of Defense (DoD), and 
its contractors and subcontractors (other than those that are Afghan 
legal entities or residents), from paying any tax or similar charge 
assessed on activities associated with this contract within 
Afghanistan. The Agreement also exempts the acquisition, 
importation, exportation, reexportation, transportation, and use of 
supplies and services in Afghanistan, by or on behalf of DoD, from 
any taxes, customs, duties, fees, or similar charges in Afghanistan.
    (c) The Contractor shall exclude any Afghan taxes, customs, 
duties, fees, or similar charges from the contract price, other than 
those charged to Afghan legal entities or residents.
    (d) The Agreement does not exempt Afghan employees of DoD 
contractors and subcontractors from Afghan tax laws. To the extent 
required by Afghan law, the Contractor shall withhold tax from the 
wages

[[Page 81470]]

of these employees and remit those payments to the appropriate 
Afghanistan taxing authority. These withholdings are an individual's 
liability, not a tax against the Contractor.
    (e) The Contractor shall include the substance of this clause, 
including this paragraph (e), in all subcontracts, including 
subcontracts for commercial items.

(End of clause)


252.229-7015  Taxes--Foreign Contracts in Afghanistan (North Atlantic 
Treaty Organization Status of Forces Agreement).

    As prescribed in 229.402-70(l), use the following clause:

Taxes--Foreign Contracts in Afghanistan (North Atlantic Treaty 
Organization Status of Forces Agreement) (DEC 2015)

    (a) This acquisition is covered by the Status of Forces 
Agreement (SOFA) entered into between the North Atlantic Treaty 
Organization (NATO) and the Islamic Republic of Afghanistan issued 
on September 30, 2014, and entered into force on January 1, 2015.
    (b) The SOFA exempts NATO Forces and its contractors and 
subcontractors (other than those that are Afghan legal entities or 
residents) from paying any tax or similar charge assessed within 
Afghanistan. The SOFA also exempts the acquisition, importation, 
exportation, reexportation, transportation and use of supplies and 
services in Afghanistan from all Afghan taxes, customs, duties, 
fees, or similar charges.
    (c) The Contractor shall exclude any Afghan taxes, customs, 
duties, fees or similar charges from the contract price, other than 
those that are Afghan legal entities or residents.
    (d) Afghan citizens employed by NATO contractors and 
subcontractors are subject to Afghan tax laws. To the extent 
required by Afghan law, the Contractor shall withhold tax from the 
wages of these employees and remit those withholdings to the 
Afghanistan Revenue Department. These withholdings are an 
individual's liability, not a tax against the Contractor.
    (e) The Contractor shall include the substance of this clause, 
including this paragraph (e), in all subcontracts including 
subcontracts for commercial items.

(End of clause)

[FR Doc. 2015-32870 Filed 12-29-15; 8:45 am]
BILLING CODE 5001-06-P



                                                             Federal Register / Vol. 80, No. 250 / Wednesday, December 30, 2015 / Rules and Regulations                                        81467

                                                   • Is not a ‘‘significant regulatory                  This action is not a ‘‘major rule’’ as                DEPARTMENT OF DEFENSE
                                                action’’ subject to review by the Office                defined by 5 U.S.C. 804(2).
                                                of Management and Budget under                                                                                Defense Acquisition Regulations
                                                                                                          Under section 307(b)(1) of the Clean
                                                Executive Orders 12866 (58 FR 51735,                                                                          System
                                                                                                        Air Act, petitions for judicial review of
                                                October 4, 1993) and 13563 (76 FR 3821,                 this action must be filed in the United
                                                January 21, 2011);                                                                                            48 CFR Parts 212, 229, and 252
                                                                                                        States Court of Appeals for the
                                                   • Does not impose an information                                                                           [Docket DARS–2014–0046]
                                                                                                        appropriate circuit by February 29,
                                                collection burden under the provisions
                                                of the Paperwork Reduction Act (44                      2016. Filing a petition for                           RIN 0750–AI26
                                                U.S.C. 3501 et seq.);                                   reconsideration by the Administrator of
                                                   • Is certified as not having a                       this final rule does not affect the finality          Defense Federal Acquisition
                                                significant economic impact on a                        of this action for the purposed of                    Regulation Supplement: Taxes—
                                                substantial number of small entities                    judicial review nor does it extend the                Foreign Contracts in Afghanistan
                                                under the Regulatory Flexibility Act (5                 time within which a petition for judicial             (DFARS Case 2014–D003)
                                                U.S.C. 601 et seq.);                                    review may be filed, and shall not                    AGENCY:  Defense Acquisition
                                                   • Does not contain any unfunded                      postpone the effectiveness of such rule               Regulations System, Department of
                                                mandate or significantly or uniquely                    or action. This action may not be                     Defense (DoD).
                                                affect small governments, as described                  challenged later in proceedings to                    ACTION: Final rule.
                                                in the Unfunded Mandates Reform Act                     enforce its requirements. (See section
                                                of 1995 (Pub. L. 104–4);                                307(b)(2).)                                           SUMMARY:   DoD is issuing a final rule
                                                   • Does not have Federalism                                                                                 amending the Defense Federal
                                                                                                        List of Subjects in 40 CFR Part 52                    Acquisition Regulation Supplement
                                                implications as specified in Executive
                                                Order 13132 (64 FR 43255, August 10,                      Environmental protection, Air                       (DFARS) to notify contractors of
                                                1999);                                                  pollution control, Incorporation by                   requirements relating to Afghanistan
                                                   • Is not an economically significant                 reference, Intergovernmental relations,               taxes for contracts performed in
                                                regulatory action based on health or                    Ozone, Reporting and recordkeeping                    Afghanistan.
                                                safety risks subject to Executive Order                 requirements, Volatile organic                        DATES: Effective December 30, 2015.
                                                13045 (62 FR 19885, April 23, 1997);                    compounds.                                            FOR FURTHER INFORMATION CONTACT: Ms.
                                                   • Is not a significant regulatory action                                                                   Julie Hammond, telephone 571–372–
                                                subject to Executive Order 13211 (66 FR                   Dated: December 15, 2015.
                                                                                                                                                              6174.
                                                28355, May 22, 2001);                                   Ron Curry,
                                                   • Is not subject to requirements of                                                                        SUPPLEMENTARY INFORMATION:
                                                                                                        Regional Administrator, Region 6.
                                                section 12(d) of the National                                                                                 I. Background
                                                Technology Transfer and Advancement                         40 CFR part 52 is amended as follows:
                                                                                                                                                                 DoD published a proposed rule in the
                                                Act of 1995 (15 U.S.C. 272 note) because
                                                                                                        PART 52—APPROVAL AND                                  Federal Register at 79 FR 35715 on June
                                                application of those requirements would
                                                                                                        PROMULGATION OF                                       24, 2014, to revise the DFARS to add
                                                be inconsistent with the CAA; and
                                                                                                        IMPLEMENTATION PLANS                                  two new clauses that notify contractors
                                                   • Does not provide EPA with the
                                                                                                                                                              of requirements relating to Afghanistan
                                                discretionary authority to address, as
                                                                                                        ■ 1. The authority citation for part 52               taxes when contracts are being
                                                appropriate, disproportionate human
                                                                                                        continues to read as follows:                         performed in Afghanistan. Three
                                                health or environmental effects, using
                                                                                                                                                              respondents submitted public
                                                practicable and legally permissible                         Authority: 42 U.S.C. 7401 et seq.                 comments in response to the proposed
                                                methods, under Executive Order 12898
                                                                                                                                                              rule.
                                                (59 FR 7629, February 16, 1994).                        Subpart SS—Texas
                                                In addition, this rule does not have                                                                          II. Discussion and Analysis
                                                tribal implications as specified by                     ■ 2. Section 52.2275 is amended by                       DoD reviewed the public comments in
                                                Executive Order 13175 (65 FR 67249,                     adding paragraph (k) to read as follows:              the development of the final rule. A
                                                November 9, 2000), because it merely                                                                          discussion of the comments is provided
                                                makes a determination based on air                      § 52.2275 Control strategy and
                                                                                                                                                              below:
                                                quality data.                                           regulations: Ozone.
                                                   The Congressional Review Act, 5                      *      *    *     *     *                             A. Summary of Significant Changes
                                                U.S.C. 801 et seq., as added by the Small                                                                     From the Proposed Rule
                                                                                                           (k) Determination of Attainment.
                                                Business Regulatory Enforcement                         Effective January 29, 2016 the EPA has                   The final rule amends DFARS clause
                                                Fairness Act of 1996, generally provides                determined that the Houston-Galveston-                252.229–7014, Taxes—Foreign
                                                that before a rule may take effect, the                 Brazoria 8-hour ozone nonattainment                   Contracts in Afghanistan, to reference
                                                agency promulgating the rule must                       area has attained the 1997 ozone                      the bilateral security agreement entitled
                                                submit a rule report, which includes a                  standard. Under the provisions of the                 ‘‘The Security and Defense Cooperation
                                                copy of the rule, to each House of the                  EPA’s Clean Data Policy, this                         Agreement between the Islamic
                                                Congress and to the Comptroller General                 determination suspends the                            Republic of Afghanistan and the United
                                                of the United States. EPA will submit a                                                                       States of America’’ signed on September
                                                                                                        requirements for this area to submit an
                                                report containing this action and other                                                                       30, 2014. The reference to the bilateral
                                                                                                        attainment demonstration and other
mstockstill on DSK4VPTVN1PROD with RULES




                                                required information to the U.S. Senate,                                                                      security agreement replaces the
                                                                                                        State Implementation Plans related to
                                                the U.S. House of Representatives, and                                                                        reference to the prior Agreement entered
                                                the Comptroller General of the United                   attainment of the 1997 ozone NAAQS                    into between the United States and
                                                States prior to publication of the rule in              for so long as the area continues to                  Afghanistan on May 28, 2003, regarding
                                                the Federal Register. A major rule                      attain the 1997 ozone NAAQS.                          the ‘‘Status of United States Military
                                                cannot take effect until 60 days after it               [FR Doc. 2015–32752 Filed 12–29–15; 8:45 am]          and Civilian Personnel of the U.S.
                                                is published in the Federal Register.                   BILLING CODE 6560–50–P                                Department of Defense Present in


                                           VerDate Sep<11>2014   16:09 Dec 29, 2015   Jkt 238001   PO 00000   Frm 00029   Fmt 4700   Sfmt 4700   E:\FR\FM\30DER1.SGM   30DER1


                                                81468        Federal Register / Vol. 80, No. 250 / Wednesday, December 30, 2015 / Rules and Regulations

                                                Afghanistan,’’ which was concluded by                   accordance with DFARS clause                            Comment: One respondent suggested
                                                an exchange of diplomatic notes (U.S.                   252.225–7015(d). Another respondent                   that clauses, similar to those included in
                                                Embassy Kabul note No. 202, dated                       asked about DoD’s expectations                        the proposed rule, be added to
                                                September 26, 2002; Afghanistan                         regarding documentation of the price                  specifically address and make the rule
                                                Ministry of Foreign Affairs notes 791                   markup for Afghan income taxes as part                equally applicable to local Afghan
                                                and 93, dated December 12, 2002, and                    of the contract price and whether                     contractors, vendors, and landlords.
                                                May 28, 2003, respectively). The clause                 United States Government contractors                    Response: The final rule has been
                                                is also amended to change ‘‘Government                  will be required to refund the United                 updated to reference the new bilateral
                                                of the United States of America’’ to the                States Government if the Afghan                       security agreement. Article 17.3 of the
                                                ‘‘Department of Defense’’ to more                       contractors do not owe income taxes                   new agreement states that United States
                                                accurately represent the new agreement.                 due to losses.                                        contractors that are Afghan entities shall
                                                   The final rule also amends DFARS                       Response: The language that allowed                 not be exempt from corporate profits tax
                                                clause 252.229–7015, Taxes—Foreign                      contractors to include Afghan taxes on                that may be assessed by the Afghanistan
                                                Contracts in Afghanistan (North Atlantic                profits earned by local contractors in the            government within the territory of
                                                Treaty Organization Status of Forces                    contract price is removed from the final              Afghanistan on income received due to
                                                Agreement), to reference the North                      rule.                                                 their status as United States contractors.
                                                Atlantic Treaty Organization (NATO)                                                                           III. Applicability to Contracts at or
                                                Status of Forces Agreement (SOFA)                       2. Bilateral Security Agreement
                                                                                                                                                              Below the Simplified Acquisition
                                                signed on September 30, 2014, instead                      Comment: A respondent commented                    Threshold (SAT) and for Commercial
                                                of the Military Technical Agreement                     that clarifying language is needed in the             Items, Including Commercially
                                                (MTA) entered into between the NATO                     pending bilateral security agreement                  Available Off-the-Shelf (COTS) Items
                                                International Security Assistance Force                 between the United States and
                                                (ISAF) and Interim Administration of                                                                             This rule creates two new clauses: (1)
                                                                                                        Afghanistan to affirm that all non-
                                                Afghanistan in April 2002. As a result                                                                        DFARS 252.229–7014, Taxes—Foreign
                                                                                                        Afghan national employees working on
                                                of the new SOFA, the reference to the                                                                         Contracts in Afghanistan, and (2)
                                                                                                        DoD contracts are tax exempt and will
                                                                                                                                                              DFARS 252.229–7015, Taxes—Foreign
                                                2011 NATO ISAF Letter of                                not be treated as Afghan residents.
                                                                                                                                                              Contracts in Afghanistan (North Atlantic
                                                Interpretation that modified the MTA’s                     Response: This comment concerns the                Treaty Organization Status of Forces
                                                tax exemption is also removed,                          content of the bilateral security                     Agreement). The objective of the rule is
                                                including the language allowing                         agreement, which is outside the scope of              to exempt DoD contracts performed in
                                                contractors to include taxes on profits                 this rule.                                            Afghanistan from payment liability for
                                                earned by local contractors in the                         Comment: Two respondents requested                 Afghan taxes pursuant to the bilateral
                                                contract price.                                         that implementation of the proposed
                                                   The final rule also clarifies at DFARS                                                                     security agreement entitled ‘‘The
                                                                                                        rule be delayed until resolution is                   Security and Defense Cooperation
                                                212.301 that the clauses apply to                       reached between the United States and
                                                solicitations and contracts using FAR                                                                         Agreement between the Islamic
                                                                                                        the Afghanistan government in a                       Republic of Afghanistan and the United
                                                part 12 procedures for the acquisition of               bilateral security agreement. If
                                                commercial items.                                                                                             States of America’’ signed on September
                                                                                                        implementation of the rule is not                     30, 2014, and the North Atlantic Treaty
                                                B. Analysis of Public Comments                          delayed, one respondent requested that                Organization (NATO) Status of Forces
                                                                                                        the proposed rule be revised to allow                 Agreement (SOFA) signed on September
                                                1. Taxes in Afghanistan                                 contracting officers to relieve defense               30, 2014.
                                                   Comment: A respondent commented                      contractors and subcontractors of the                    DoD is applying these two clauses to
                                                that the Afghan Ministry of Forces                      risks and responsibilities when denied a              solicitations and contracts below the
                                                interprets Diplomatic Note (DN) 202 to                  tax exemption by the Afghan Ministry of               SAT and to the acquisition of
                                                apply only to prime contractors, while                  Finance.                                              commercial items, including COTS
                                                industry practice is to treat                              Response: A resolution has been                    items, as defined at FAR 2.101. This
                                                subcontractors in Afghanistan as subject                reached between the United States and                 rule clarifies the application of
                                                to taxation. The respondent asked how                   the Afghanistan government in a                       requirements relating to treatment of
                                                DoD will enforce paragraph (b) of                       bilateral security agreement. The final               taxes for contracts performed in
                                                DFARS clause 252.225–7014, which                        rule has been updated to reference the                Afghanistan. Not applying this guidance
                                                exempts subcontractors from any taxes                   new bilateral security agreement.                     to contracts below the SAT and for the
                                                assessed in Afghanistan in accordance                   3. General                                            acquisition of commercial items,
                                                with DN 202.                                                                                                  including COTS items, would exclude
                                                   Response: The final rule has been                      Comment: A respondent stated that                   contracts intended to be covered by this
                                                updated to reference the new bilateral                  the new tax law may limit the amount                  rule and undermine the overarching
                                                security agreement between the United                   of contractors willing to work for the                purpose of the rule. Consequently, DoD
                                                States and Afghanistan signed on                        United States Government and may hurt                 is applying the rule to contracts below
                                                September 30, 2014. Article 17.3 of the                 future business relations between                     the SAT and for the acquisition of
                                                new agreement states that United States                 Afghanistan and the United States.                    commercial items, including COTS
                                                subcontractors shall not be liable to pay                 Response: This comment concerns                     items.
                                                any tax assessed by the government of                   Afghanistan tax law and is outside the
                                                Afghanistan within the territory of                     scope of this rule.                                   IV. Executive Orders 12866 and 13563
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                                                Afghanistan on their activities under a                   Comment: A respondent                                  Executive Orders (E.O.s) 12866 and
                                                contract or subcontract with, or in                     recommended that the United States                    13563 direct agencies to assess all costs
                                                support of, United States Forces.                       Government reduce costs by minimizing                 and benefits of available regulatory
                                                   Comment: A respondent                                the use of military personnel and                     alternatives and, if regulation is
                                                recommended Afghan contractors not be                   employing more Afghans.                               necessary, to select regulatory
                                                allowed to include Afghan tax on profits                  Response: The comment is outside the                approaches that maximize net benefits
                                                earned from NATO ISAF contracts in                      scope of this rule.                                   (including potential economic,


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                                                             Federal Register / Vol. 80, No. 250 / Wednesday, December 30, 2015 / Rules and Regulations                                               81469

                                                environmental, public health and safety                    There are no new projected reporting,                Afghanistan, in solicitations and
                                                effects, distributive impacts, and                      recordkeeping, or other compliance                      contracts, including solicitations and
                                                equity). E.O. 13563 emphasizes the                      requirements projected for this rule.                   contracts using FAR part 12 procedures
                                                importance of quantifying both costs                       There are no known significant                       for the acquisition of commercial items,
                                                and benefits, of reducing costs, of                     alternatives to the rule. The impact of                 with performance in Afghanistan,
                                                harmonizing rules, and of promoting                     this rule on small business is not                      unless the clause at 252.229–7015 is
                                                flexibility. This is not a significant                  expected to be significant.                             used.
                                                regulatory action and, therefore, was not                                                                         (l) Use the clause at 252.229–7015,
                                                                                                        VI. Paperwork Reduction Act
                                                subject to review under section 6(b) of                                                                         Taxes—Foreign Contracts in
                                                E.O. 12866, Regulatory Planning and                       The rule does not contain any                         Afghanistan (North Atlantic Treaty
                                                Review, dated September 30, 1993. This                  information collection requirements that                Organization Status of Forces
                                                rule is not a major rule under 5 U.S.C.                 require the approval of the Office of                   Agreement), instead of the clause at
                                                804.                                                    Management and Budget under the                         252.229–7014, Taxes—Foreign
                                                                                                        Paperwork Reduction Act (44 U.S.C.                      Contracts in Afghanistan, in
                                                V. Regulatory Flexibility Act
                                                                                                        chapter 35).                                            solicitations and contracts, including
                                                   A final regulatory flexibility analysis                                                                      solicitations and contracts using FAR
                                                has been prepared consistent with the                   List of Subjects in 48 CFR Parts 212,
                                                                                                        229, and 252                                            part 12 procedures for the acquisition of
                                                Regulatory Flexibility Act, 5 U.S.C. 601,                                                                       commercial items, with performance in
                                                et seq., and is summarized as follows:                       Government procurement.                            Afghanistan awarded on behalf of the
                                                   DoD is amending the Defense Federal                                                                          North Atlantic Treaty Organization
                                                Acquisition Regulation Supplement                       Jennifer L. Hawes,
                                                                                                        Editor, Defense Acquisition Regulations                 (NATO), which are governed by the
                                                (DFARS) to add two new clauses in                                                                               NATO Status of Forces Agreement
                                                order to notify DoD contractors of                      System.
                                                                                                                                                                (SOFA), if approval from the Director,
                                                requirements relating to Afghanistan                      Therefore, 48 CFR parts 212, 229, and                 Defense Procurement and Acquisition
                                                taxes when DoD contracts are being                      252 are amended as follows:                             Policy, Office of the Under Secretary of
                                                performed in Afghanistan. The clause at                 ■ 1. The authority citation for 48 CFR                  Defense for Acquisition, Technology,
                                                DFARS 252.229–7014, Taxes-Foreign                       parts 212, 229, and 252 continue to read                and Logistics, has been obtained prior to
                                                Contracts in Afghanistan, will be                       as follows:                                             each use.
                                                required to be included in solicitations
                                                                                                             Authority: 41 U.S.C. 1303 and CFR chapter
                                                and contracts, including solicitations                  1.                                                      PART 252—SOLICITATION
                                                and contracts using FAR part 12                                                                                 PROVISIONS AND CONTRACT
                                                procedures for the acquisition of                       PART 212—ACQUISITION OF                                 CLAUSES
                                                commercial items, with performance in                   COMMERCIAL ITEMS
                                                Afghanistan, unless the clause at                                                                               ■ 4. Add sections 252.229–7014 and
                                                252.229–7015 is used. The clause at                     ■ 2. Amend section 212.301 by—                          252.229–7015 to read as follows:
                                                DFARS 252.229–7015, Taxes-Foreign                       ■ a. Redesignating paragraphs (f)(xiii)
                                                Contracts in Afghanistan (North Atlantic                                                                        252.229–7014      Taxes—Foreign Contracts in
                                                                                                        through (xix) as (f)(xiv) through (xx);
                                                                                                                                                                Afghanistan.
                                                Treaty Organization Status of Forces                    and
                                                Agreement), will be required to be                      ■ b. Adding a new paragraph (f)(xiii).
                                                                                                                                                                  As prescribed in 229.402–70(k), use
                                                included in all solicitations and                         The addition reads as follows:                        the following clause:
                                                contracts, including solicitations and                                                                          Taxes—Foreign Contracts in Afghanistan
                                                                                                        212.301 Solicitation provisions and
                                                contracts using FAR part 12 procedures                                                                          (DEC 2015)
                                                                                                        contract clauses for acquisition of
                                                for the acquisition of commercial items,                commercial items.                                          (a) This acquisition is covered by the
                                                with performance in Afghanistan                                                                                 Security and Defense Cooperation Agreement
                                                awarded on behalf of NATO, which are                    *      *    *    *    *                                 (the Agreement) between the Islamic
                                                                                                          (f) * * *                                             Republic of Afghanistan and the United
                                                governed by the NATO Status of Forces
                                                                                                          (xiii) Part 229—Taxes.                                States of America signed on September 30,
                                                Agreement, if approval from the
                                                                                                          (A) Use the clause at 252.229–7014,                   2014, and entered into force on January 1,
                                                Director, Defense Procurement and
                                                                                                        Taxes—Foreign Contracts in                              2015.
                                                Acquisition Policy, Office of the Under                                                                            (b) The Agreement exempts the
                                                                                                        Afghanistan, as prescribed at 229.402–
                                                Secretary of Defense for Acquisitions,                                                                          Department of Defense (DoD), and its
                                                                                                        70(k).
                                                Technology, and Logistics, is obtained                    (B) Use the clause at 252.229–7015,                   contractors and subcontractors (other than
                                                prior to each use.                                      Taxes—Foreign Contracts in
                                                                                                                                                                those that are Afghan legal entities or
                                                   No comments were received from the                                                                           residents), from paying any tax or similar
                                                                                                        Afghanistan (North Atlantic Treaty                      charge assessed on activities associated with
                                                public relative to the initial regulatory
                                                                                                        Organization Status of Forces                           this contract within Afghanistan. The
                                                flexibility analysis.
                                                   DoD does not expect this proposed                    Agreement), as prescribed at 229.402–                   Agreement also exempts the acquisition,
                                                rule to have a significant economic                     70(l).                                                  importation, exportation, reexportation,
                                                                                                        *      *    *    *    *                                 transportation, and use of supplies and
                                                impact on a substantial number of small                                                                         services in Afghanistan, by or on behalf of
                                                entities within the meaning of the                                                                              DoD, from any taxes, customs, duties, fees, or
                                                Regulatory Flexibility Act, 5 U.S.C. 601,               PART 229—TAXES
                                                                                                                                                                similar charges in Afghanistan.
                                                et seq., because this rule merely                       ■ 3. In section 229.402–70, revise the                     (c) The Contractor shall exclude any
                                                provides notice of the tax exemption for                                                                        Afghan taxes, customs, duties, fees, or similar
                                                                                                        section heading and add new
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                                                DoD contracts where performance is in                                                                           charges from the contract price, other than
                                                                                                        paragraphs (k) and (l) to read as follows:              those charged to Afghan legal entities or
                                                Afghanistan. According to data in the
                                                                                                                                                                residents.
                                                Federal Procurement Data System, a                      229.402–70         Additional provisions and
                                                                                                                                                                   (d) The Agreement does not exempt
                                                total of thirty-five small business                     clauses.
                                                                                                                                                                Afghan employees of DoD contractors and
                                                vendors received contract awards where                  *     *    *     *     *                                subcontractors from Afghan tax laws. To the
                                                performance was in Afghanistan during                     (k) Use the clause at 252.229–7014,                   extent required by Afghan law, the
                                                fiscal year 2015.                                       Taxes—Foreign Contracts in                              Contractor shall withhold tax from the wages



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                                                81470             Federal Register / Vol. 80, No. 250 / Wednesday, December 30, 2015 / Rules and Regulations

                                                of these employees and remit those payments                               charges from the contract price, other than                                ACTION:        Final rule.
                                                to the appropriate Afghanistan taxing                                     those that are Afghan legal entities or
                                                authority. These withholdings are an                                      residents.
                                                individual’s liability, not a tax against the                               (d) Afghan citizens employed by NATO
                                                                                                                                                                                                     SUMMARY:  DoD is issuing a final rule
                                                Contractor.                                                               contractors and subcontractors are subject to                              amending the Defense Federal
                                                  (e) The Contractor shall include the                                    Afghan tax laws. To the extent required by                                 Acquisition Regulation Supplement
                                                substance of this clause, including this                                  Afghan law, the Contractor shall withhold                                  (DFARS) to incorporate increased
                                                paragraph (e), in all subcontracts, including                             tax from the wages of these employees and                                  thresholds for application of the World
                                                subcontracts for commercial items.                                        remit those withholdings to the Afghanistan                                Trade Organization Government
                                                (End of clause)                                                           Revenue Department. These withholdings are
                                                                                                                          an individual’s liability, not a tax against the                           Procurement Agreement and the Free
                                                252.229–7015 Taxes—Foreign Contracts in                                   Contractor.                                                                Trade Agreements, as determined by the
                                                Afghanistan (North Atlantic Treaty                                          (e) The Contractor shall include the                                     United States Trade Representative.
                                                Organization Status of Forces Agreement).                                 substance of this clause, including this
                                                                                                                          paragraph (e), in all subcontracts including                               DATES:        Effective: January 1, 2016.
                                                  As prescribed in 229.402–70(l), use                                     subcontracts for commercial items.
                                                the following clause:                                                                                                                                FOR FURTHER INFORMATION CONTACT: Ms.
                                                                                                                          (End of clause)                                                            Amy G. Williams, telephone 571–372–
                                                Taxes—Foreign Contracts in Afghanistan                                    [FR Doc. 2015–32870 Filed 12–29–15; 8:45 am]
                                                (North Atlantic Treaty Organization Status
                                                                                                                                                                                                     6106.
                                                                                                                          BILLING CODE 5001–06–P
                                                of Forces Agreement) (DEC 2015)
                                                                                                                                                                                                     SUPPLEMENTARY INFORMATION:
                                                   (a) This acquisition is covered by the
                                                Status of Forces Agreement (SOFA) entered                                 DEPARTMENT OF DEFENSE                                                      I. Background
                                                into between the North Atlantic Treaty
                                                Organization (NATO) and the Islamic                                                                                                                    Every two years, the trade agreements
                                                                                                                          Defense Acquisition Regulations
                                                Republic of Afghanistan issued on September                               System                                                                     thresholds are escalated according to a
                                                30, 2014, and entered into force on January                                                                                                          predetermined formula set forth in the
                                                1, 2015.                                                                                                                                             agreements. The United States Trade
                                                   (b) The SOFA exempts NATO Forces and                                   48 CFR Parts 225 and 252
                                                                                                                                                                                                     Representative has specified the
                                                its contractors and subcontractors (other than                            [Docket DARS–2015–0066]
                                                those that are Afghan legal entities or                                                                                                              following new thresholds in the Federal
                                                residents) from paying any tax or similar                                 RIN 0750–AI79                                                              Register (80 FR 77694, December 15,
                                                charge assessed within Afghanistan. The                                                                                                              2015):
                                                SOFA also exempts the acquisition,                                        Defense Federal Acquisition
                                                importation, exportation, reexportation,                                  Regulation Supplement: Trade
                                                transportation and use of supplies and                                    Agreements Thresholds (DFARS Case
                                                services in Afghanistan from all Afghan                                   2016–D003)
                                                taxes, customs, duties, fees, or similar
                                                charges.                                                                  AGENCY: Defense Acquisition
                                                   (c) The Contractor shall exclude any                                   Regulations System, Department of
                                                Afghan taxes, customs, duties, fees or similar                            Defense (DoD).

                                                                                                                                                                                                                                        Construction
                                                                                                                                                                                                                     Supply contract      contract
                                                                                                                  Trade agreement                                                                                     (equal to or      (equal to or
                                                                                                                                                                                                                       exceeding)        exceeding)

                                                WTO GPA ........................................................................................................................................................             191,000        7,358,000
                                                FTAs:
                                                   Australia FTA ............................................................................................................................................                 77,533        7,358,000
                                                   Bahrain FTA .............................................................................................................................................                 191,000       10,079,365
                                                   CAFTA–DR (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua) ...                                                                             77,533        7,358,000
                                                   Chile FTA ..................................................................................................................................................               77,533        7,358,000
                                                   Colombia FTA ...........................................................................................................................................                   77,533        7,358,000
                                                   Korea FTA ................................................................................................................................................                100,000        7,358,000
                                                   Morocco FTA ............................................................................................................................................                  191,000        7,358,000
                                                   NAFTA
                                                        —Canada ..........................................................................................................................................                    25,000       10,079,365
                                                        —Mexico ............................................................................................................................................                  77,533       10,079,365
                                                   Panama FTA ............................................................................................................................................                   191,000        7,358,000
                                                   Peru FTA ..................................................................................................................................................               191,000        7,358,000
                                                   Singapore FTA .........................................................................................................................................                    77,533        7,358,000



                                                II. Discussion and Analysis                                               with conforming changes. A minor                                           Regulation (FAR) is 41. U.S.C. entitled
                                                                                                                          technical amendment corrects cross                                         ‘‘Publication of Proposed Regulations.’’
                                                   This final rule implements the new                                     references at 225.1101(10)(i) and                                          Paragraph (a)(1) of the statute requires
                                                thresholds in DFARS part 225, Foreign                                     paragraphs (b)(1)(i) and (ii) of the clause                                that a procurement policy, regulation,
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                                                Contracting, for sections that include                                    at 252.225–7018.                                                           procedure or form (including an
                                                trade agreements thresholds (i.e.,                                                                                                                   amendment or modification thereof)
                                                225.1101, 225.7017–3, 225.7017–4, and                                     III. Publication of This Final Rule for
                                                                                                                          Public Comment Is Not Required by                                          must be published for public comment
                                                225.7503). Additionally, the rule                                                                                                                    if it relates to the expenditure of
                                                                                                                          Statute
                                                updates clauses 252.225–7017,                                                                                                                        appropriated funds, and has either a
                                                Photovoltaic Devices, and 252.225–                                          The statute that applies to the                                          significant effect beyond the internal
                                                7018, Photovoltaic Devices—Certificate,                                   publication of the Federal Acquisition                                     operating procedures of the agency


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Document Created: 2015-12-30 03:16:30
Document Modified: 2015-12-30 03:16:30
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionRules and Regulations
ActionFinal rule.
DatesEffective December 30, 2015.
ContactMs. Julie Hammond, telephone 571-372- 6174.
FR Citation80 FR 81467 
RIN Number0750-AI26
CFR Citation48 CFR 212
48 CFR 229
48 CFR 252

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