New Excise Tax on Foreign Procurement Signed into Law
On January 2, 2011, the President signed into law H.R. 847, the James Zadroga 9/11 Health and Compensation Act of 2010. As enacted, H.R. 847 contains a new excise tax on foreign procurement which was opposed by several trade groups.
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New Excise Tax on Foreign Procurement
Section 301 of H.R. 847 amends Subtitle D of the Internal Revenue Code of 1986 to add a new Chapter 50 on Foreign Procurement. This new chapter imposes a tax equal to 2% of the amount of a specified Federal procurement payment1 on any foreign person that receives such a payment.
According to certain congressional press releases, H.R. 847 places a 2% excise tax on foreign manufacturers/companies (not party to the WTO Government Procurement Agreement (GPA)) selling to the U.S. government.
According to H.R. 847, the new tax applies to payments received pursuant to contracts entered into on and after the date of the enactment.
Reimbursement of fees prohibited. The head of each executive agency is required to take any and all measures necessary to ensure that no funds are disbursed to any foreign contractor in order to reimburse this new tax. The Administrator for Federal Procurement Policy would be required to annually review the contracting activities of each executive agency to monitor compliance with the prohibition on the reimbursement of fees.
Application shall be in a manner consistent with U.S. int’l agreement obligations. H.R. 847 states that Section 301 and its amendments shall be applied in a manner consistent with U.S. obligations under international agreements.
Trade Groups Urged Removal of Procurement Tax from Bill Prior to Passage
Prior to the passage of H.R. 847, several trade groups2 sent a letter to Congressional leaders urging the removal of the foreign procurement provision from the bill.
In their letter, the groups emphasized that this new provision would “undermine U.S. efforts to succeed in the international economy by both inviting non-GPA countries to take reciprocal action against U.S. companies seeking to participate in their procurement markets and by opening the U.S. to retaliation for violating its WTO obligations.” The groups also note that the imposition of such a tax on foreign companies may also violate U.S. international commitments and, “if found to be contrary to U.S. WTO commitments, other countries could end up being authorized to retaliate directly against U.S. exports, further undermining U.S. opportunities overseas.”
1The term ‘specified Federal procurement payment’ means any payment made pursuant to a contract with the U.S. government for (1) the provision of goods, if such goods are manufactured or produced in any country which is not a party to an international procurement agreement with the U.S., or (2) the provision of services, if such services are provided in any country which is not a party to an international procurement agreement with the U.S.
2American Association of Exporters and Importers, Association of Equipment Manufacturers, Business Roundtable, Emergency Committee for American Trade, National Foreign Trade Council, National Retail Federation, Organization for International Investment, TechAmerica, U.S. Council for International Business, U.S. Chamber of Commerce, and the U.S.-China Business Council.
Copy of letter available by emailing documents@brokerpower.com.