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MEMORANDUM FOR :
SEE DISTRIBUTION
SUBJECT :
Prohibition on Taxation of U.S. Assistance (DSCA Policy 04-32)[SAMM E-Change 19]
REFERENCE :
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Consolidated Appropriations Act, 2004 (Division D -Foreign Operations, Export Financing, and Related Programs Appropriations Act) (P.L. 108-199)
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Consolidated Appropriations Act, 2003 (Division E -Foreign Operations, Export Financing, and Related Programs Appropriations Act) (P.L. 108-7)
Section 506 of reference (a) and section 579 of reference (b) prohibit the taxation of U. S. assistance provided under Foreign Operations, Export Financing, and Related Programs Appropriations Act(s). Foreign Military Financing (FMF), International Military Education and Training (IMET), Peacekeeping Operations (PKO), and International Narcotics Control and Law Enforcement (INCLE) are examples of U.S. assistance programs that are subject to the legislation. The country receiving the U.S. assistance must exempt any articles, equipment, materials, supplies, goods, or other commodities purchased with U.S. assistance programs funding from all Value Added Taxes (VAT) and customs duties or reimburse this amount, regardless of the vehicle used to provide the assistance (i.e., Foreign Military Sales (FMS), Direct Commercial Contract(DCC), IMET program, or lease).
If the government receiving the assistance taxes any of the above named items, the legislation requires the Secretary of State to: (1) certify that there are taxes on U.S. assistance that have not been reimbursed and (2) determine in accordance with the terms of this legislation whether to withhold funds or waive the withholding. If the Secretary of State does not waive the withholding, two hundred percent of the total VAT and custom duties assessed by a foreign government on commodities financed with funds appropriated and allocated pursuant to the Foreign Operations, Export Financing, and Related Programs Appropriations Act for the central government of the country must be withheld from the following fiscal year funds. The amount withheld will be reduced by any reimbursement of taxes by the foreign government that assessed the tax or duty.
To ensure that all FMS cases are compliant with references (a) and (b), the attached note (Attachment 1) shall be included on all Letters of Offer and Acceptance (LOA) for articles that are financed with U.S. assistance funds appropriated and allocated pursuant to the Foreign Operations, Export Financing, and Related Programs Appropriations Act. The prohibitions of references (a) and .(b) normally do not apply to Title 10 programs. This note will be included in the DoD 5105.38-M, Security Assistance Management Manual (SAMM) as SAMM E-Change 19. To ensure that DCCs financed with U.S. assistance are compliant with references (a) and (b), a clause on taxes and duties (Attachment 2) must be on all DCCs.
Because the Security Assistance program (e.g., FMS, IMET Program, etc. the DoD acquisition system, Implementing Agencies are required to inform their contracting activities of the prohibition on taxation of U.S. assistance.
To ensure compliance with this legislation, DSCA (Business Operations Directorate) will issue data calls, at least annually, to the Military Departments and the Defense Finance and Accounting Service (Denver Center) for information on prohibited taxes. DSCA will provide information from these data calls to the Department of State. Section 506 of reference (a) and section 579 of reference (b) exemptions do not limit any other tax exemptions that may be granted through other treaties and agreements. However, only those taxes that violate the provisions of section 506 of reference (a) and section 579 of reference (b) must be reported in the data call.
Guidance in this memorandum is effective immediately. If you have any questions regarding this matter, please feel free to contact Mr. Steve Harris (Security Assistance Policy) at (703) 604-6611, e-mail steve.harris@dsca.mil ; Ms. Ann Cataldo(Legal) at 703-604-0297, e-mail ann.cataldo@dsca.mil ; Ms. Dawn Burke (Training Policy) at (703) 601-3864, e-mail dawn.burke@dsca.mil ; Ms. Del Woods (DCC Policy)at 703-604-6630, e-mail del.woods@dsca.mil ; or Ms. Patricia Higgins (Financial Policy)at (703)-604-6570, e-mail patricia.higgins@dsca.mil .
Jeffrey B. Kohler
Lieutenant General, USAF
Director
ATTACHMENT :
1) SAMM E-Change 19 -Prohibition of Taxation of U.S. Assistance Note for LOA Documents
2) Sample Taxes and Duties Clause for Direct Commercial Contracts (DCCs) Using U.S Assistance
DISTRIBUTION :
DEPUTY ASSISTANT SECRETARY OF THE ARMY
FOR DEFENSE EXPORTS AND COOPERATION
DEPARTMENT OF THE ARMY
ATTN: SAAL-NP
DEPUTY ASSISTANT SECRETARY OF THE NAVY
(INTERNATIONAL PROGRAMS)
DEPARTMENT OF THE NAVY
DEPUTY UNDER SECRETARY OF THE AIR FORCE
(INTERNATIONAL AFFAIRS)
DEPARTMENT OF THE AIR FORCE
DIRECTOR, DEFENSE LOGISTICS AGENCY
DIRECTOR, NATIONAL GEOSPATIAL-INTELLIGENCE AGENCY
DIRECTOR, DEFENSE THREAT REDUCTION AGENCY
DIRECTOR, DEFENSE REUTILIZATION AND MARKETING SERVICE
DIRECTOR, DEFENSE CONTRACT MANAGEMENT AGENCY
DIRECTOR, DEFENSE INFORMATION SYSTEMS AGENCY
DIRECTOR, DEFENSE LOGISTICS INFORMATION SERVICE DEPUTY
DIRECTOR FOR INFORMATION ASSURANCE, NATIONAL SECURITY AGENCY
DIRECTOR FOR SECURITY ASSISTANCE, DEFENSE FINANCE AND ACCOUNTING SERVICE - DENVER CENTER
CC :
USASAC
SATFA TRADOC
NAVICP
NETSAFA
AFSAC
AFSAT
DISAM
STATE/PM-RSAT/PPA/RM
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