FAR 52.229-6—Taxes-Foreign Fixed-Price Contracts.
Plain-English Summary
FAR 52.229-6, Taxes-Foreign Fixed-Price Contracts, allocates foreign tax risk in fixed-price contracts performed outside the United States and its outlying areas. It explains when the clause applies in place of other tax clauses, defines key terms such as contract date, country concerned, taxes, all applicable taxes and duties, after-imposed tax, after-relieved tax, and excepted tax, and sets the baseline rule that the contract price normally includes applicable foreign taxes and duties. The clause then provides for price increases for certain after-imposed taxes and excluded taxes, price decreases for after-relieved taxes and taxes caused by contractor fault or negligence, and special treatment for taxes imposed under 26 U.S.C. 5000C. It also addresses the $250 threshold for adjustments, the Government’s right to recover tax-related benefits and refunds, the contractor’s duty to seek exemptions and refunds, and the duty to notify the contracting officer and follow directions on tax matters. In practice, this clause is a key risk-allocation mechanism for overseas fixed-price work because foreign tax regimes can change during performance, and both parties need a clear process for identifying, documenting, and adjusting for tax events.
Key Rules
Applies to foreign performance
This clause applies only to the extent the contract requires supplies or services outside the United States and its outlying areas. For that work, it replaces any Federal, State, and local taxes clause in the contract.
Key terms control coverage
The clause defines contract date, country concerned, tax, all applicable taxes and duties, after-imposed tax, after-relieved tax, and excepted tax. These definitions determine which taxes are included in the price, which changes qualify for adjustment, and which taxes are excluded from relief.
Price includes applicable taxes
Unless the contract says otherwise, the fixed price includes all applicable taxes and duties in effect on the contract date, except taxes and duties the U.S. and the foreign government have agreed will not apply to U.S.-related expenditures in that country. Taxes imposed under 26 U.S.C. 5000C may not be included in the price or reimbursed.
After-imposed taxes may increase price
The contract price is increased for after-imposed taxes or for taxes and duties specifically excluded from the price if the contractor must pay them, states in writing that no contingency was included, and the liability was not caused by the contractor’s fault, negligence, or failure to follow the contracting officer’s instructions or paragraph (i). Taxes under 26 U.S.C. 5000C are not eligible for this increase.
After-relieved taxes reduce price
The contract price must be decreased by any after-relieved tax, including related interest or penalty. If the contractor receives interest on a refund after being paid by the Government for the tax, the Government is entitled to that interest, and any refunded penalty paid by the Government must also be repaid.
Contractor-caused tax losses are not reimbursed
If the contractor has to pay or bear a tax, duty, interest, or penalty because of its fault, negligence, or failure to follow the contracting officer’s instructions or paragraph (i), the contract price is reduced rather than increased. The clause shifts the loss to the contractor when the contractor caused the problem.
Small adjustments are ignored
No price adjustment is made unless the amount exceeds $250. This avoids administrative processing of very small tax changes.
Tax benefits must be passed through
If the contractor gets a reduction in U.S. tax liability under the Internal Revenue Code because of a tax or duty that was included in the contract price or used to justify a price increase, the resulting benefit must be paid or credited to the Government as directed by the contracting officer.
Duty to seek exemptions and refunds
The contractor must take all reasonable action to obtain exemptions or refunds of taxes and duties, including interest or penalties, when the United States, the contractor, subcontractors, or covered transactions or property are exempt under local law or under an agreement between the United States and the foreign country.
Duty to notify and follow directions
The contractor must promptly notify the contracting officer of tax matters that may increase or decrease the contract price and must take appropriate action as directed. This gives the Government timely visibility and control over tax-related claims and recoveries.
Responsibilities
Contracting Officer
Determine whether the clause applies to foreign performance, direct the contractor on tax-related actions, evaluate requests for price adjustments, and require repayment or credit of tax benefits, refunds, interest, or penalties owed to the Government.
Contractor
Include applicable taxes in the fixed price unless excluded, track foreign tax changes, notify the contracting officer promptly of tax events, seek exemptions and refunds, provide written statements when claiming an increase, comply with contracting officer instructions, and pass through tax reductions or refunds owed to the Government.
Government of the United States
Bear the contract-price consequences of qualifying after-imposed taxes and receive the benefit of after-relieved taxes, refunded penalties, and tax-related reductions in U.S. tax liability when the clause so requires.
Foreign taxing authority
Impose, exempt, reduce, refund, or otherwise administer taxes and duties under local law, which may trigger contract price adjustments under the clause.
Practical Implications
Contractors performing overseas fixed-price work must build foreign tax risk into pricing and monitor local tax law changes throughout performance.
A contractor cannot simply pass through every foreign tax increase; it must show the tax qualifies under the clause, was not caused by its own fault or negligence, and was not covered by a contingency already included in price.
Documentation matters: written notice, proof of payment, refund records, and evidence of exemption efforts are often essential to support or defeat a price adjustment.
The clause creates a two-way adjustment system, so tax refunds, exemptions, and later tax relief can reduce the contract price just as tax increases can raise it.
Contractors should watch for special exclusions, especially taxes under 26 U.S.C. 5000C, which cannot be included in price or reimbursed under this clause.
Official Regulatory Text
As prescribed in 29.402-1 (a) , insert the following clause: Taxes-Foreign Fixed-Price Contracts (Feb 2013) (a) To the extent that this contract provides for furnishing supplies or performing services outside the United States and its outlying areas, this clause applies in lieu of any Federal, State, and local taxes clause of the contract. (b) Definitions . As used in this clause- Contract date means the date set for bid opening or, if this is a negotiated contract or a modification, the effective date of this contract or modification. Country concerned means any country, other than the United States and its outlying areas, in which expenditures under this contract are made. Tax and "taxes" include fees and charges for doing business that are levied by the government of the country concerned or by its political subdivisions. All applicable taxes and duties means all taxes and duties, in effect on the contract date, that the taxing authority is imposing and collecting on the transactions or property covered by this contract, pursuant to written ruling or regulation in effect on the contract date. After-imposed tax means any new or increased tax or duty, or tax that was exempted or excluded on the contract date but whose exemption was later revoked or reduced during the contract period, other than excepted tax, on the transactions or property covered by this contract that the Contractor is required to pay or bear as the result of legislative, judicial, or administrative action taking effect after the contract date. After-relieved tax means any amount of tax or duty, other than an excepted tax, that would otherwise have been payable on the transactions or property covered by this contract, but which the Contractor is not required to pay or bear, or for which the Contractor obtains a refund, as the result of legislative, judicial, or administrative action taking effect after the contract date. Excepted tax means social security or other employment taxes, net income and franchise taxes, excess profits taxes, capital stock taxes, transportation taxes, unemployment compensation taxes, and property taxes. "Excepted tax" does not include gross income taxes levied on or measured by sales or receipts from sales, property taxes assessed on completed supplies covered by this contract, or any tax assessed on the Contractor’s possession of, interest in, or use of property, title to which is in the U.S. Government. (c) (1) Unless otherwise provided in this contract, the contract price includes all applicable taxes and duties, except taxes and duties that the Government of the United States and the government of the country concerned have agreed shall not be applicable to expenditures in such country by or on behalf of the United States, except as provided in subparagraph (c)(2) of this clause. (2) Taxes imposed under 26 U.S.C. 5000 C may not be- (i) Included in the contract price; nor (ii) Reimbursed. (d) (1) Except as provided in subparagraph (d)(2) of this clause, the contract price shall be increased by the amount of any after-imposed tax or of any tax or duty specifically excluded from the contract price by a provision of this contract that the Contractor is required to pay or bear, including any interest or penalty, if the Contractor states in writing that the contract price does not include any contingency for such tax and if liability for such tax, interest, or penalty was not incurred through the Contractor’s fault, negligence, or failure to follow instructions of the Contracting Officer or to comply with the provisions of paragraph (i) of this clause. (2) The contract price may not be increased to offset taxes imposed under 26 U.S.C. 5000 C. (e) The contract price shall be decreased by the amount of any after-relieved tax, including any interest or penalty. The Government of the United States shall be entitled to interest received by the Contractor incident to a refund of taxes to the extent that such interest was earned after the Contractor was paid by the Government of the United States for such taxes. The Government of the United States shall be entitled to repayment of any penalty refunded to the Contractor to the extent that the penalty was paid by the Government. (f) The contract price shall be decreased by the amount of any tax or duty, other than an excepted tax, that was included in the contract and that the Contractor is required to pay or bear, or does not obtain a refund of, through the Contractor’s fault, negligence, or failure to follow instructions of the Contracting Officer or to comply with the provisions of paragraph (i) of this clause. (g) No adjustment shall be made in the contract price under this clause unless the amount of the adjustment exceeds $250. (h) If the Contractor obtains a reduction in tax liability under the United States Internal Revenue Code (Title26, U.S. Code) because of the payment of any tax or duty that either was included in the contract price or was the basis of an increase in the contract price, the amount of the reduction shall be paid or credited to the Government of the United States as the Contracting Officer directs. (i) The Contractor shall take all reasonable action to obtain exemption from or refund of any taxes or duties, including interest or penalty, from which the United States Government, the Contractor, any subcontractor, or the transactions or property covered by this contract are exempt under the laws of the country concerned or its political subdivisions or which the governments of the United States and of the country concerned have agreed shall not be applicable to expenditures in such country by or on behalf of the United States. (j) The Contractor shall promptly notify the Contracting Officer of all matters relating to taxes or duties that reasonably may be expected to result in either an increase or decrease in the contract price and shall take appropriate action as the Contracting Officer directs. The contract price shall be equitably adjusted to cover the costs of action taken by the Contractor at the direction of the Contracting Officer, including any interest, penalty, and reasonable attorneys’ fees. (End of clause)