2
between the U.S. Government and the host country,
2
and/or the laws and policies of the host-
country government. It should be made considering any USAID mission-specific policies (e.g.,
Mission Orders) and/or procedures concerning foreign tax allowability and after consultation, as
appropriate, with cognizant legal counsel (the Resident Legal Officer (“RLO”) or Office of
General Counsel (“GC”)).
Applicable Cost Principles: The allowability of taxes is governed by the applicable cost
principles, either 2 C.F.R. Part 200, Section 470 or FAR 31.205-41, depending on the type of
organization and award.
3
Although there are some differences between the applicable provisions
(see Table 1, Cost Principle Excerpts, below), both sets of rules establish that a foreign tax for
which there is an exemption available either directly to the organization, or indirectly based on
an exemption available to the U.S. Government, is not allowable.
4
If there is no exemption
directly or indirectly available to the organization, the tax may be allowable.
Bilateral Agreements: U.S. law requires that USAID include provisions in its framework
bilateral agreements allowing exemptions or reimbursements for foreign taxes on U.S.
development assistance.
5
These provisions are necessary because U.S. law cannot grant an
exemption from another country's tax laws -- only the host-country government can grant an
exemption from its laws.
6
As a result, most exemptions from taxes on development assistance
are based on the specific terms of a bilateral agreement. Accordingly, the process for invoking
an exemption or seeking reimbursement varies based on the terms of the bilateral agreement, as
well as the law and practices of the host government.
Best Practices: It is not possible at a global level to define the specific steps that must be taken
to establish that the contractor or recipient used its best efforts to invoke the exception or seek
reimbursement. Whether a contractor or a recipient has met its burden in establishing
allowability may depend on a variety of factors specific to the country. However, as discussed
below, there are general steps that M/OAA recommends that COs and AOs consider when
making a determination concerning the allowability of foreign taxes. Those steps are as follows:
2
Underlying all USAID development assistance activities conducted within the territory of a foreign country is at
least one international agreement that establishes the terms under which the United States provides such assistance.
While these agreements are often a “Framework Bilateral Agreement,” as defined in ADS Chapter 349, International
Agreements, the term “bilateral agreement” is used in this PEB broadly to refer to the underlying agreements
between the United States and the host country that provide the basis for exempting USAID development assistance
from taxation.
3
See 2 C.F.R. § 200.401, Application, and FAR Subpart 31.1, covering application of the FAR cost principles to
grants, cooperative agreements, and contracts and organizations by type.
4
A Directly Eligible/Available exemption is one that a USAID contractor or recipient can obtain directly and on its
own irrespective of the extent to which its activities in country are financed by USAID. By contrast, an Indirectly
Eligible/Available Exemption is one that a USAID contractor or recipient can obtain because a tax exemption has
been granted to USAID and the USAID-financed activities of its contractors and recipients through a bilateral
agreement with the host country.
5
See Pub. L. 113-76, 128 Stat. 5, § 7013 (Section 7013 of the 2014 State Foreign Operations Appropriations Act
(SFOAA)).
6
See ADS Chapter 155 - "Department of State Section 579 Implementation - Taxation of U.S. Foreign Assistance."
Note that Section 579 has been replaced by SFOAA Section 7013.