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

Prohibition on Taxation of United States Assistance

Section 579. As Amended by Section 506 of the FY 2004 FOAA:

(a) Prohibition on Taxation.--None of the funds appropriated by this Act may be made available to provide assistance for a foreign country under a new bilateral agreement governing the terms and conditions under which such assistance is to be provided unless such agreement includes a provision stating that assistance provided by the United States shall be exempt from taxation, or reimbursed, by the foreign government, and the Secretary of State shall expeditiously seek to negotiate amendments to existing bilateral agreements, as necessary, to conform with this requirement.

(b) Reimbursement of Foreign Taxes.--An amount equivalent to 200 percent of the total taxes assessed during fiscal year 2003 on funds appropriated by this Act by a foreign government or entity against commodities financed under United States assistance programs for which funds are appropriated by this Act, either directly or through grantees, contractors and subcontractors, as of the date of the enactment of this Act, shall be withheld from obligation from funds appropriated for assistance for fiscal year 2004 and allocated for the central government of such country and for the West Bank and Gaza Program to the extent that the Secretary of State certifies and reports in writing to the Committees on Appropriations that such taxes have not been reimbursed to the Government of the United States.

(c) De Minimis Exception.--Foreign taxes of a de minimis nature shall not be subject to the provisions of subsection (b).

(d) Reprogramming of Funds.--Funds withheld from obligation for each country or entity pursuant to subsection (b), shall be reprogrammed for assistance to countries which do not assess taxes on United States assistance or which have an effective arrangement that is providing substantial reimbursement of such taxes.

(e) Determinations.--
     (1) The provisions of this section shall not apply to any country or entity the Secretary of State determines--
          (A) does not assess taxes on United States assistance or which has an effective arrangement that is providing substantial reimbursement of such taxes; or 
          (B) the foreign policy interests of the United states outweigh the policy of this section to ensure that United States assistance in not subject to taxation.
     (2) The Secretary of State shall consult with the Committees on Appropriations at least 15 days prior to exercising the authority of this subsection with regard to any country or entity.

(f) Implementation.--The Secretary of State shall issue rules, regulations, or policy guidance, as appropriate, to implement the prohibition against the taxation of assistance contained in this section.

(g) Definitions.--As used in this section--
     (1) the terms "taxes'' and "taxation'' refer to value added taxes and customs duties imposed on commodities financed with United States assistance for programs for which funds are appropriated by this Act; and
     (2) the term "bilateral agreement'' refers to a framework bilateral agreement between the Government of the United States and the government of the country receiving assistance that describes the privileges and immunities applicable to United States foreign assistance for such country generally, or an individual agreement between the Government of the United States and such government that describes, among other things, the treatment for tax purposes that will be accorded the United States assistance provided under that agreement.

(h) Relationship to Prior Law.--Section 579 of Division E of Public Law 108-7 shall be deemed to have been amended by subsection (f) of this section and the modifications made by this section to comparable provisions contained in section 579.

Joint Statement of Managers

“The conference agreement contains a provision [section 506 of the FY 2004 FOAA] prohibiting taxation of U.S. assistance that is a modification of a similar provision contained in section 579 of the fiscal year 2003 foreign operations appropriations act. The managers intend that section 579 be applied in accordance with the changes made to that section by this Act. In addition, in order not to create an undue reporting burden on contractors, grantees and other entities implementing that section, and in recognition that the reimbursement process is often not completed by the time it is necessary to determine what amounts are to be withheld, the managers agree that in determining amounts to be withheld, agencies may use estimates and statistical sampling to determine the amount of assessed taxes and the amount of reimbursements that will be paid over a reasonable period of time.”