Yesterday the White House announced the signing of a Bilateral Security Agreement (“BSA”) between the United States and the Afghan Government of National Unity, as well as a Status of Forces Agreement between the Afghan Government and NATO. Together these agreements allow approximately 12,000 U.S. and NATO troops to remain in Afghanistan after December 31, 2014, and they maintain the flow of billions of dollars in aid to Afghanistan. In addition, the BSA will address significant open questions about the rights and responsibilities of U.S. Government contractors in Afghanistan, to include: How will they be taxed by the Afghan Government?
We and the contracting community have been closely following this issue. If the executed BSA conforms to the below language from an earlier draft, the November 2013 “Pre-Decisional” BSA, activities and income on U.S. contracts and subcontracts in Afghanistan will be exempt from Afghan taxes:
3. United States contractors shall not be liable to pay any tax or similar or related charges assessed by the Government of Afghanistan within the territory of Afghanistan on their activities, and associated income, relating to or on behalf of United States forces under a contract or subcontract with or in support of United States forces. However, United States contractors that are Afghan legal entities shall not be exempt from corporate profits tax that may be assessed by the Government of Afghanistan within the territory of Afghanistan on income received due to their status as United States contractors.
. . . . .
6. United States contractors and United States contractor employees are not exempt under this Agreement from paying taxes assessed by the Government of Afghanistan within the territory of Afghanistan on their activities in Afghanistan that are not associated with supplying goods and services in Afghanistan to or on behalf of United States forces under a contract or subcontract with or in support of United States forces.
The executed BSA is not yet publicly available, but we look forward to seeing how it addresses this and other important issues.