FAR 9.108-1—Definitions.
Plain-English Summary
FAR 9.108-1 provides the definitions that control how the rest of FAR 9.108 is applied. It defines two key terms: "inverted domestic corporation" and "subsidiary." The first term ties directly to the statutory definition in 6 U.S.C. 395(b), as applied under 6 U.S.C. 395(c), so users must look to that statute for the full legal test rather than relying on the FAR text alone. The second term establishes a majority-ownership standard for identifying a subsidiary, including ownership held directly by a parent corporation or indirectly through another subsidiary. In practice, these definitions matter because they determine which entities are covered by the restrictions and compliance requirements in FAR 9.108, especially in situations involving corporate restructuring, mergers, acquisitions, and complex ownership chains. Contractors, contracting officers, and agency personnel must use these definitions carefully because small differences in corporate structure can change whether a company is treated as covered under the rule.
Key Rules
Statutory definition controls
"Inverted domestic corporation" is not independently defined in detail in the FAR text; instead, the term means a foreign incorporated entity that meets the definition in 6 U.S.C. 395(b), applied under the rules and definitions in 6 U.S.C. 395(c). Users must consult the statute to determine coverage.
Foreign incorporation is required
The definition applies only to a foreign incorporated entity. A domestic corporation does not fit this term unless the statutory definition in 6 U.S.C. 395(b), as incorporated by reference, is satisfied through the statutory test.
Majority ownership defines subsidiary
A subsidiary is an entity in which more than 50 percent of the entity is owned by a parent corporation. The ownership threshold is controlling; 50 percent or less is not enough under this definition.
Direct ownership counts
An entity is a subsidiary if more than 50 percent is owned directly by a parent corporation. Direct ownership is the simplest path to subsidiary status under this section.
Indirect ownership also counts
An entity is also a subsidiary if more than 50 percent is owned through another subsidiary of a parent corporation. This means ownership can be traced through a corporate chain, not just held at the top level.
Responsibilities
Contracting Officer
Identify whether an offeror or contractor falls within the definition of an inverted domestic corporation or has subsidiary relationships that affect coverage under FAR 9.108. When evaluating responsibility, eligibility, or compliance issues, the contracting officer must apply the statutory definition and ownership test accurately.
Contractor / Offeror
Understand its own corporate structure and determine whether it may be treated as an inverted domestic corporation or whether related entities qualify as subsidiaries under the more-than-50-percent ownership standard. The contractor should disclose and document ownership relationships when relevant to procurement eligibility or compliance determinations.
Agency
Apply the definitions consistently across procurement actions and ensure personnel use the correct statutory and FAR standards when assessing corporate status. Agencies should maintain awareness of ownership structures that may affect coverage under FAR 9.108.
Legal / Compliance Staff
Analyze corporate organization charts, ownership percentages, and statutory criteria to determine whether an entity meets the definition of an inverted domestic corporation or subsidiary. They should support contracting personnel with accurate legal and factual determinations.
Practical Implications
This section is foundational: if you misread the definitions, you can misapply the rest of FAR 9.108 and reach the wrong eligibility or compliance result.
The inverted domestic corporation definition depends on external statutory language, so users should not rely on the FAR text alone; they must check 6 U.S.C. 395(b) and (c).
The subsidiary definition uses a strict "more than 50 percent" test, so exact ownership percentages matter. A 50/50 joint venture or equal ownership arrangement is not a subsidiary under this definition.
Indirect ownership through another subsidiary counts, so contractors and contracting officers need to trace ownership through the full corporate chain, not just the immediate parent-child relationship.
Common pitfalls include assuming any affiliate is a subsidiary, overlooking indirect ownership, and failing to update corporate status after mergers, reorganizations, or acquisitions.
Official Regulatory Text
As used in this section- Inverted domestic corporation means a foreign incorporated entity that meets the definition of an inverted domestic corporation under 6 U.S.C. 395(b) , applied in accordance with the rules and definitions of 6 U.S.C. 395(c) . Subsidiary means an entity in which more than 50 percent of the entity is owned- (1) Directly by a parent corporation; or (2) Through another subsidiary of a parent corporation.