To demonstrate Foreign Entity of Concern (FEOC) compliance, suppliers should be prepared to demonstrate that they are not prohibited foreign entities (PFEs) and that their manufactured product component (MPC) suppliers are not PFEs. They should also be prepared to demonstrate the origin of their components and provide the documentation buyers need to satisfy their own FEOC diligence obligations.
Developers, tax equity investors, and buyers are increasingly asking suppliers for documentation that remains defensible during financing, diligence, and future IRS review. Suppliers that can produce complete, organized documentation are better positioned to support project financing and avoid delays during diligence.
What Buyers Are Looking For
A buyer's review extends beyond a supplier's own certification. Buyers are expected to perform reasonable diligence and satisfy the applicable 'reason to know' standard before relying on supplier certifications. That means suppliers should expect requests for documentation that supports their PFE compliance, not simply documentation that states it.
Providing complete documentation early in the procurement process helps reduce financing delays and minimize disruption during project diligence.
Step 1: Demonstrate PFE Status
Begin by demonstrating that your organization is not a prohibited foreign entity (PFE) and that your manufactured product component (MPC) suppliers are not PFEs.
- Maintain a current PFE certification or disclosure that reflects the supplier's current organizational structure.
- Complete customer diligence questionnaires fully and accurately.
- Execute certifications under penalties of perjury where requested.
- Be prepared for buyers to validate certifications against publicly available information and other available sources.
Step 2: Document Component-Level Traceability
PFE status alone may not be enough. Suppliers should be prepared to demonstrate where their manufactured product components (MPCs) originate and how they calculated the material assistance cost ratio (MACR).
- Maintain a component-level bill of materials.
- Calculate and document the material assistance cost ratio (MACR).
- Maintain the supporting documentation used to calculate the MACR, not just the final percentage.
- Be prepared to identify whether your manufactured product component (MPC) suppliers are PFEs, where applicable.
Step 3: Maintain Supporting Documentation
Supporting documentation gives buyers confidence that your certifications accurately reflect the products delivered to the project and can withstand financing and future diligence. Be prepared to produce documentation that connects your certifications to the components shipped and installed.
- Maintain proof of delivery confirming that the products shipped match those installed on the project.
- Retain invoices, country-of-origin documentation, and supplier records supporting component sourcing.
- Maintain sub-supplier certifications, where applicable.
- Organize documentation so it can be produced quickly during financing, project diligence, or an IRS examination.
Common Documentation Gaps That Slow Down Diligence
The suppliers that create the greatest challenges during diligence are not necessarily those with prohibited content. More often, they are the ones that cannot produce the documentation needed to support their certifications and demonstrate compliance.
- Outdated PFE certifications prepared for earlier transactions.
- Bills of materials that summarize products rather than identifying individual manufactured product components.
- Missing supporting documentation for MACR calculations.
- Incomplete documentation from manufactured product component (MPC) suppliers.
- Documentation that cannot demonstrate which products were delivered to and installed on the project.
Building FEOC Compliance into Your Process
The strongest suppliers treat FEOC documentation as part of normal business operations rather than something assembled only when a customer asks. Maintaining current certifications, supporting documentation and traceability records throughout production makes customer diligence more efficient and reduces the likelihood of delays during financing or project review.
Frequently Asked Questions
Is a signed PFE certification enough?
No. A signed certification is an important part of the diligence package, but buyers may still request supporting documentation to satisfy their 'reason to know' obligations. Certifications are strongest when supported by bills of materials, MACR calculations, proof of delivery, and other contemporaneous records.
What is the 'reason to know' standard?
The 'reason to know' standard requires buyers to evaluate whether information available to them raises questions about a supplier's PFE certifications. If contradictory information is readily available, additional diligence may be appropriate before relying on a supplier's certification.
Do I need to provide documentation for my MPC suppliers?
Potentially. Buyers may request information regarding manufactured product component suppliers where it is relevant to evaluating material assistance or determining whether PFE-related requirements have been satisfied.
What documentation should I have ready before customers ask?
Suppliers should be prepared to provide:
- A current PFE certification.
- A component-level bill of materials.
- MACR calculations and supporting documentation.
- Proof of delivery for shipped products.
- Supporting sourcing records, including country-of-origin documentation where applicable.
- Relevant documentation from MPC suppliers when needed.
Empact Technologies turns FEOC compliance into audit-ready, component-level documentation for suppliers and manufacturers through NexusIQ™, so diligence requests get answered, not delayed.
Contact EmpactFiled Under