FAR 52.229-7—Taxes-Fixed-Price Contracts with Foreign Governments.
Plain-English Summary
FAR 52.229-7 addresses how taxes and duties are treated in fixed-price contracts performed in foreign countries when the United States has tax arrangements with the host government. It defines the term “contract date,” explains that the contract price generally excludes certain taxes and duties that are not applicable to U.S. expenditures in the foreign country, and requires downward price adjustments if such taxes were mistakenly included. The clause also bars inclusion of taxes imposed under 26 U.S.C. 5000C, which is a separate statutory tax rule. In addition, it provides for price reduction if the U.S. and the foreign government later agree that a tax or duty included in the price should not apply after contract award, and it establishes a $250 threshold below which no adjustment is made. In practice, this clause protects the Government from paying foreign taxes it is not supposed to bear, shifts the pricing burden to accurate tax identification at proposal time, and gives contracting officers a mechanism to correct the contract price when tax exemptions or agreements change.
Key Rules
Contract date controls
The clause defines “contract date” as the bid opening date for sealed bidding, or the effective date of the contract or modification for negotiated actions and modifications. This date matters because it anchors when tax treatment is measured and when later tax-agreement changes may trigger a price reduction.
Excluded taxes and duties
The contract price does not include any tax or duty that the United States and the foreign government have agreed will not apply to U.S. expenditures in that country, or any tax or duty that is otherwise not applicable under the foreign country’s laws. If such a tax or duty was included in the price by mistake or otherwise, the price must be reduced accordingly.
No inclusion of 5000C taxes
Taxes imposed under 26 U.S.C. 5000C may not be included in the contract price. Contractors must ensure these taxes are not built into pricing, and contracting officers should verify that pricing excludes them.
Later tax agreement changes price
If, after the contract date, the United States and the foreign government agree that a tax or duty included in the contract price should not apply to U.S. expenditures in the foreign country, the contract price must be reduced to reflect that change. The clause is designed to capture post-award tax relief and pass the benefit to the Government.
Minimum adjustment threshold
No contract price adjustment is made under this clause unless the amount exceeds $250. Small tax changes below that threshold are not separately adjusted under this clause.
Responsibilities
Contracting Officer
Insert the clause when prescribed, identify the correct foreign government and country names, and administer any required price reduction when taxes or duties are found to be improperly included or later become inapplicable. The contracting officer should also ensure the contract price excludes 26 U.S.C. 5000C taxes and apply the $250 threshold before processing an adjustment.
Contractor
Prepare pricing so it excludes taxes and duties that are not applicable to the contract, including taxes covered by U.S.-foreign government agreements and taxes barred by the clause. The contractor must avoid including 26 U.S.C. 5000C taxes in the price and should support any pricing or invoice treatment with accurate tax information.
Foreign Government
Through tax agreements or local law, determine whether certain taxes or duties do not apply to U.S. expenditures in the host country. Changes in these agreements can trigger a contract price reduction under the clause.
United States Government
Negotiate and maintain tax agreements with the foreign government and ensure the contract price reflects the tax treatment those agreements require. When later agreements remove a tax or duty from applicability, the Government should seek the corresponding price reduction.
Practical Implications
Contract pricing must be built with foreign tax treatment in mind from the start; otherwise the Government may overpay and then need a downward modification.
Contractors should not assume all local taxes are allowable in the price—some are excluded by treaty, agreement, local law, or statute, and 26 U.S.C. 5000C is specifically prohibited.
The $250 threshold means very small tax differences will not be adjusted, so teams should track whether a potential adjustment is worth pursuing.
Contracting officers should verify the correct foreign country and government names are inserted, because the clause depends on the specific tax arrangement with that jurisdiction.
When tax agreements change after award, both parties should review whether the change affects the contract price and whether the resulting adjustment exceeds the minimum threshold.
Official Regulatory Text
As prescribed in 29.402-1 (b) , insert the following clause: Taxes-Fixed-Price Contracts with Foreign Governments (Feb 2013) (a) "Contract date," as used in this clause, 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. (b) (1) The contract price, including the prices in any subcontracts under this contract, does not include any tax or duty that the Government of the United States and the Government of ______ [ insert name of the foreign government ] have agreed shall not apply to expenditures made by the United States in ______ [ insert name of country ] , or any tax or duty not applicable to this contract or any subcontracts under this contract, pursuant to the laws of ______ [ insert name of country ] . If any such tax or duty has been included in the contract price, through error or otherwise, the contract price shall be correspondingly reduced. (2) Taxes imposed under 26 U.S.C. 5000 C may not be included in the contract price. (c) If, after the contract date, the Government of the United States and the Government of ______ [ insert name of the foreign government ] agree that any tax or duty included in the contract price shall not apply to expenditures by the United States in ________ [ insert name of country ] , the contract price shall be reduced accordingly. (d) No adjustment shall be made in the contract price under this clause unless the amount of the adjustment exceeds $250. (End of clause)