Final regulations issued on U.S. government foreign procurement payments

The IRS recently released final regulations (T.D. 9782) under Section 5000C relating to the 2% tax on payments made by the U.S. government to foreign persons pursuant to certain contracts. The regulations affect U.S. government acquiring agencies and foreign persons providing certain goods or services to the U.S. government pursuant to a contract. The final regulations were also released under Section 6114, with respect to foreign persons claiming an exemption from the 2% tax under an income tax treaty.

The proposed regulations were originally released in April 2015 under Section 5000C. The IRS also released Notice 2015-35 to provide a list of qualified income tax treaties that exempt all nationals of that country from the 2% tax imposed under Section 5000C.

Penalties for failure to file certain required forms may apply to foreign contracting parties who fail to file the required return. However, relief may be available if a foreign contracting party fully satisfies its tax and filing obligations under Section 5000C with respect to any payments received in tax years ending before Nov. 16, 2016, on or before the later of Nov.16, 2016, or the due date for the foreign person’s income tax return for the year in which the payment was received.
Contact David Sites
Partner, Washington National Tax Office
T +1 202 861 4104

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