Section 579 Implementation (Taxation of U.S. Foreign Assistance)

Information for U.S. Embassies, Certain U.S. Government Agencies, and
Non-governmental Recipients Responsible for Implementing Foreign Assistance
Programs or Activities

Section 579 of the Foreign Operations, Export Financing and Related Programs Appropriations Act, 2003 (FY 2003 FOAA), (Division E, P.L. 108-7), as amended by section 506 of the FY 2004 FOAA (P.L. 108-199), requires certain steps aimed at preventing countries from imposing taxes (defined as only VAT or customs duties) on U.S. foreign assistance programs, or that countries should reimburse the program if taxes are assessed.

This legislation requires such “no taxation/reimbursement” clauses in all new bilateral assistance agreements and the negotiation of amendments to existing agreements. It also requires that, in FY 2004, the Secretary of State withhold from foreign assistance funds allocated to the taxing central government 200% of the amount of unreimbursed taxes assessed in FY 2003 against commodities purchased with U.S. foreign assistance.

In order to determine whether and how much FY 2004 assistance must be withheld, the Department of State must collect data on taxation and reimbursement by foreign governments. Once withheld, funds available for reprogramming by the Secretary of State.

Section 506 of the FY 2004 FOAA amends the original statute by giving the Secretary of State the ability to waive application of the provision in certain cases. Other amendments to the statute, based on congressional intent, include using estimates for reporting of taxes and reimbursements, as well as limiting the reporting data to FY 2003 and subsequent fiscal year funds. “Pipeline” funds are no longer included in reporting.

To fulfill the requirements of this provision, the Secretary of State is required to issue rules, regulations or policy guidance; the following guidance is provided to assist in implementation of section 579/506. The guidance is addressed to U.S. embassies, USAID, Defense Security Cooperation Agency (DSCA), Peace Corps, TDA, Treasury, including Customs, Justice, offices within the Department of State (including regional bureaus whose countries are recipients of foreign assistance) and other USG agencies, NGOs, contractors, grantees, subcontractors/subgrantees, or any other recipients responsible for implementing foreign assistance programs or activities.

Also see:
--Guidance
--Statute
--Sample Language/Formats
--Points of Contact