1454.21

Statutory provision.

1454.22 Purpose of exemption.

1454.23 Application of exemption. 1454.24 What constitutes prime contract for new durable productive equpiment; in general. 1454.25 What constitutes subcontract for new durable productive equipment; in general. 1454.26 Components of new durable productive equipment.

1454.27 Prime contracts and subcontracts related to prime contracts for new durable productive equipment.

1454.28 Limitation on exemption of prime contracts for new durable productive equipment. AUTHORITY: 88 1454.21 to 1454.28 issued under sec. 109, 65 Stat. 22; 50 U.S.C. App. 1219.

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1454.21 Statutory provision.-With spect to fiscal years ending on or after June 30, 1953, section 106(c) of the act provides as follows:

(1) In general.—The provisions of this title shall not apply to receipts or accruals (other than rents) from contracts or subcontracts for new durable productive equipment, except (A) to that part of such receipts or accruals which bears the same ratio to the total of such receipts or accruals as five years bears to the average useful life of such equipment as set forth in Bulletin F of the Bureau of Internal Revenue (1942 edition) or, if an average useful life is not so set forth, then as estimated by the Board and (B) to receipts and accruals from contracts for new durable productive equipment in cases in which the Board finds that the new durable productive equipment covered by such contracts cannot be adapted, converted, or retooled for commercial use. [Matter in italics added by Pub. Law 764, 83d Cong., approved September 1, 1954.]

(2) Definition.-For the purpose of this subsection, the term "durable productive equipment" means machinery, tools, or other productive equipment which has an average useful life of more than five years. [Matter in italics added by Public Law 216, 84th Cong., approved August 3, 1955, which also deleted

"which does not become a part of an end product, or of an article incorporated therein, and" after "other equipment”. The words “acquired by any agency of the Government under a contract with a department" after "product" were deleted by Pub. Law 764, 83d Cong., approved September 1, 1954.]

1454.22 Purpose of exemption. The purpose of the amendments contained in the foregoing exemption was stated as follows in the report of the Senate Committee on Finance ((1953) S. Rept. 643, 83d Cong. 3, to accompany H.R. 6287):

The fact that many Government purchases of machine tools at the present are for stockpiling purposes makes this amendment essential. By making sales of this type to the Government, the industry is, in effect, destroying the future market for its products because the eventual release of the Government stockpile will serve to satisfy normal demand. Thus, the amendment merely requires recognition of the fact that defense use can be expected to represent only a portion of the useful life of the equipment sold under prime contracts.

1454.23 Application of exemption.—(a) Prime contracts.-The foregoing amended exemption has the effect of making the act applicable to prime contracts for new durable productive equipment only to the extent of that part of the amounts received or accrued in any fiscal year ending on or after June 30, 1953, which bears the same ratio to the total of such amounts received or accrued as five years bears to the average useful life of such equipment as set forth in Bulletin F of the Internal Revenue Service (1942 edition) or, if an average useful life is not so set forth, then as estimated by the Board. A description of the methods of determining the amount of renegotiable business under prime contracts for new durable productive equipment is set forth in § 1456.4 (a) of this subchapter.

(b) Subcontracts.-With respect to subcontracts for new durable productive equipment, amounts received or accrued in fiscal years end

ing on or after June 30, 1953, are exempt to the same extent as amounts received or accrued in fiscal years ending before that date. However, with respect to fiscal years ending on or after June 30, 1953, subcontracts under which the purchaser of new durable productive equipment has acquired such equipment for the account of the Government are not excluded from the term "subcontracts for new durable productive equipment", and therefore are within the partial exemption.

1454.24 What constitutes prime contract for new durable productive equipment; in general. A prime contract for new durable productive equipment is a contract with a Department for such equipment. The term includes pool orders and similar commitments.

1454.25 What constitutes subcontract for new durable productive equipment; in general. A purchase order or agreement for new durable productive equipment is a subcontract subject to the act if such equipment is required for the performance of a prime contract or subcontract subject to the act. (See § 1452.4 of this subchapter.)

1454.26 Components of new durable productive equipment.-In order for a subcontract to qualify as a subcontract for new durable productive equipment, it is immaterial whether the equipment is used directly in the processing of an end product or of an article incorporated therein, or is incorporated in another item of such equipment. In order for a prime contract to qualify as a prime contract

for new durable productive equipment, it is immaterial whether or not the equipment is incorporated by the Government in another item of such equipment.

1454.27 Prime contracts and subcontracts related to prime contracts for new durable productive equipment.—The extent to which the act applies to receipts or accruals from prime contracts and subcontracts for new durable productive equipment which is incorporated in another item of such equipment will be determined by reference to the average useful life of the equipment in question and not by reference to the life of the equipment of which it becomes a part. Prime contracts and subcontracts for equipment or other materials which are not new durable productive equipment are not covered by the exemption set forth in this part even though the equipment or other materials are incorporated in new durable productive equipment. The extent to which the act applies to receipts or accruals from such prime contracts and subcontracts will be determined according to the provisions of § 1456.5 of this subchapter.

1454.28 Limitation on exemption of prime contracts for new durable productive equipment.-Prime contracts for new durable productive equipment are not covered by the exemption set forth in this part when such equipment cannot practicably be adapted, converted or retooled for commercial use. (See § 1456.4 (a) (2) (i) of this subchapter.)

1455.2 Prime contracts and subcontracts to be performed outside of the United States. 1455.3 Contracts under which profits can be determined at time contract price is established. 1455.4 Contracts when contractual provisions adequate to prevent excessive profits.

1455.5 Contracts and subcontracts of a secret nature. 1455.6 Subcontracts as to which it is not administratively feasible to segregate profits. 1455.7 Subcontracts related to exempt prime contracts and subcontracts.

1455.8 Renegotiation clause in exempt contracts. AUTHORITY: Sections 1455.1 to 1455.8 issued under section 109, Pub. Law 9, 82d Cong. Interpret or apply section 106, Pub. Law 9, 82d Cong.

1455.1 Introduction.-Section 106(d) of the act authorizes the Board in its discretion to exempt from some or all of the provisions of Title I of the act certain prime contracts and subcontracts described therein both individually and by general classes or types. This part sets forth the specific statutory authority to make such permissive exemptions and describes the prime contracts and subcontracts which have been exempted by the Board thereunder.

1455.2 Prime contracts and subcontracts to be performed outside of the United States. (a) Statutory authority.-Section 106 (d) (1) of the act authorizes the Board in its discretion to exempt from some or all of the provisions of Title I of the act the following:

(1) any contract or subcontract to be performed outside of the territorial limits of the continental United States or in Alaska;

(b) Exemption through June 30, 1956.Removed to Appendix.

(c) Limitation on exemption.-Removed to Appendix.

(c-1) Exemption after June 30, 1956.—(1) The Board has exempted from the provisions of the act, with respect to amounts received or accrued after June 30, 1956, all prime contracts and subcontracts wholly performed outside the United States by any person who is not en

gaged in a trade or business in the United States and is

(i) An individual who is not a national of the United States;

(ii) A partnership or joint venture in which individuals who are not nationals of the United States or corporations which are not domestic corporations are entitled to more than 50 percent of the profits; or

(iii) A corporation (other than a domestic corporation) more than 50 percent of the voting stock of which is owned directly or indirectly by persons described in subdivisions (i) and (ii) of this subparagraph.

For the purposes of this paragraph, the term "United States", when used in a geographical sense, includes the Territories and possessions of the United States, the Commonwealth of Puerto Rico, and the Canal Zone, and the term "domestic corporation" means a corporation organized under the laws of the United States or of any State, any Territory or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or the Canal

Zone.

(2) Interpretation and illustrations: The exemption provided in this paragraph will not apply unless all of the requirements described in subparagraph (1) of this paragraph are met at all times during the performance of the contract. If the contractor fails to meet any of these requirements at any time during the performance of the contract, the entire amount received or accrued under the contract will be subject to renegotiation. For example:

(i) The exemption will not apply to any prime contract or subcontract for sea or air transportation or cargo carriage from any point in the United States to a point outside the United States, or vice versa.

(ii) An individual who is not a national of the United States enters into a prime contract with the Navy requiring three years to perform. The contract is wholly performed outside the

United States, but during the last month of performance the contractor becomes a national of the United States. The exemption does not apply and the entire receipts or accruals under the contract, if not otherwise exempt, are subject to renegotiation.

(iii) A partnership in which one member is a national of the United States and two members are nationals of Canada enters into a prime contract with the Navy. If at any time during the performance of the contract the United States national becomes entitled to 50 percent or more of the profits, the exemption does not apply and the entire receipts or accruals under the contracts, if not otherwise exempt, are subject to renegotiation.

(iv) A corporation, all of the shares of which are owned by nationals of the United States, is incorporated in Canada. The corporation forms a wholly owned Canadian subsidiary. No prime contract or related subcontracts of the subsidiary, even though wholly performed outside the United States, is exempt under this paragraph.

(v) A corporation, all of the share of which are owned by Canadian nationals, is incorporated in Canada. All of the property of the corporation is located in Canada and all of its business is conducted in Canada, with the exception of a sales office in the United States. The exemption does not apply to any prime contract or related subcontract of the corporation, even though wholly performed in Canada.

(d) Specific exemption of prime contracts and subcontracts.-The Board has exempted and will in the future exempt individual prime contracts or subcontracts, or the prime contracts or subcontracts related to a particular authorized procurement program, when such prime contracts or subcontracts are to be performed outside the territorial limits of the continental United States or in Alaska, and when the Department responsible for procurement establishes to the satisfaction of the Board that (1) the prime contracts or subcontracts involved in the request are to be placed with foreign nationals or foreign corporations whom it is not practicable to subject to renegotiation; (2) the provisions of the prime contracts or subcontracts are otherwise sufficient to prevent excessive profits; (3) the program is of direct and immediate concern to the defense of the United

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States and refusal to grant the exemption would jeopardize the success of the program; or (4) the contract or group of contracts should be exempted for any combination of the foregoing reasons or for any other reason. Prime contractors or subcontractors who believe that their prime contracts or subcontracts should be exempted under this provision should address their requests to the Departments entering into the prime contracts involved.

1455.3 Contracts under which profits can be determined at time contract price is established. (a) Statutory authority.-Section 106 (d) (2) of the act authorizes the Board in its discretion to exempt from some or all of the provisions of Title I of the act the following:

(2) any contracts or subcontracts under which, in the opinion of the Board, the profits can be determined with reasonable certainty when the contract price is established, such as certain classes of (A) agreements for personal services or for the purchase of real prop erty, perishable goods, or commodities the minimum price for the sale of which has been fixed by a public regulatory body, (B) leases and license agreements, and (C) agreements where the period of performance under such contract or subcontract will not be in excess of thirty days.

(b) Exemptions.-In the opinion of the Board the profits from the following contracts can be determined with reasonable certainty when the contract price is established, and the Board has accordingly exempted such contracts from the provisions of the act:

(1) Certain service contracts.-All prime contracts with natural persons (not partnerships, joint ventures or corporations) entered into under authority of any law, which call for the performance of services, whether personal or professional, by the individual contractor in person under the supervision of the Government, and which are paid for on a time basis.

(2) Real estate contracts.-Prime contracts for the sale or rental of any interest in existing real estate. (See sec. 1452.5 (a) pertaining to subcontracts.)

(3) Contracts for property used in trade or business of vendor.-Prime contracts and subcontracts for the sale or exchange of tangible property used in the trade or business of the vendor, with respect to which depreciation is allowable under section 167 of the Internal Revenue Code (not including stock in trade of