Overview
This section outlines the procedures for addressing tax issues in government contracting, emphasizing that tax problems are legal matters requiring mandatory consultation with agency-designated legal counsel to ensure consistency and compliance with laws.
Key Rules
- Legal Nature of Tax Issues: Because tax problems are essentially legal and vary significantly, Contracting Officers (COs) must resolve them by referencing specific contract terms and applicable laws with the assistance of legal counsel.
- Mandatory Consultation: COs must consult with agency legal counsel before negotiating with any taxing authority regarding the validity of a tax, its applicability, or obtaining exemptions and refunds.
- Restrictions on Contractor Negotiations: In cases involving the Government’s constitutional immunity from state or local taxes, COs should discourage contractors from negotiating independently if the contract is cost-reimbursement or a fixed-price contract with a tax escalation clause.
- Foreign Acquisitions: Before purchasing from foreign sources, COs are required to consult legal counsel regarding international tax treaties, agreements, and foreign-tax-relief programs.
Practical Implications
- Risk Mitigation: By centralizing tax negotiations through legal counsel, the government prevents inconsistent tax treatments and ensures that contractors do not inadvertently waive the government's sovereign immunity.
- Pre-Award Planning: For international contracts, COs must proactively involve legal teams to navigate complex treaty landscapes, which can significantly impact the total evaluated price of a proposal.