diff --git a/integration-tests/tests/schema/contracts.spec.ts b/integration-tests/tests/schema/contracts.spec.ts
index 6d1763d9c5..68ffd831bf 100644
--- a/integration-tests/tests/schema/contracts.spec.ts
+++ b/integration-tests/tests/schema/contracts.spec.ts
@@ -618,6 +618,77 @@ test('@external fields are always included if include @tag is used', async () =>
   `);
 });
 
+test(`@external object's fields are do not have contract tag applied`, async () => {
+  const result = await client.composeAndValidate.mutate({
+    type: 'federation',
+    native: true,
+    schemas: [
+      {
+        raw: /* GraphQL */ `
+          extend schema
+            @link(url: "https://specs.apollo.dev/link/v1.0")
+            @link(url: "https://specs.apollo.dev/federation/v2.8", import: ["@key", "@tag"])
+
+          type Query {
+            user: User @tag(name: "public")
+          }
+
+          type User @key(fields: "id") {
+            id: ID! @tag(name: "public")
+            ssn: String
+          }
+        `,
+        source: 'user.graphql',
+        url: 'https://localhost:3000/graphql',
+      },
+      {
+        raw: /* GraphQL */ `
+          extend schema
+            @link(url: "https://specs.apollo.dev/link/v1.0")
+            @link(
+              url: "https://specs.apollo.dev/federation/v2.8"
+              import: ["@key", "@external", "@requires", "@tag"]
+            )
+
+          extend type User @external {
+            ssn: String
+          }
+
+          type User @key(fields: "id") {
+            id: ID!
+            creditScore: Int @requires(fields: "ssn") @tag(name: "public")
+          }
+        `,
+        source: 'credit.graphql',
+        url: 'https://localhost:3001/graphql',
+      },
+    ],
+    external: null,
+    contracts: [
+      {
+        id: 'foo',
+        filter: {
+          removeUnreachableTypesFromPublicApiSchema: false,
+          exclude: null,
+          include: ['public'],
+        },
+      },
+    ],
+  });
+  expect(result.errors).toEqual([]);
+  expect(result.contracts?.[0].errors).toEqual([]);
+  expect(result.contracts?.[0].sdl).toMatchInlineSnapshot(`
+    type User {
+      id: ID!
+      creditScore: Int
+    }
+
+    type Query {
+      user: User
+    }
+  `);
+});
+
 test('include with exclude is possible', async () => {
   const result = await client.composeAndValidate.mutate({
     type: 'federation',
diff --git a/packages/services/schema/src/lib/__tests__/federation-tag-extraction.spec.ts b/packages/services/schema/src/lib/__tests__/federation-tag-extraction.spec.ts
index 3b4443294b..540c9c37d3 100644
--- a/packages/services/schema/src/lib/__tests__/federation-tag-extraction.spec.ts
+++ b/packages/services/schema/src/lib/__tests__/federation-tag-extraction.spec.ts
@@ -449,6 +449,38 @@ describe('applyTagFilterToInaccessibleTransformOnSubgraphSchema', () => {
         }
       `);
     });
+
+    test('external objects do not apply inaccessible based on tags', () => {
+      const filter: Federation2SubgraphDocumentNodeByTagsFilter = {
+        include: new Set(['public']),
+        exclude: new Set(),
+      };
+      const sdl = parse(/* GraphQL */ `
+        extend schema
+          @link(url: "https://specs.apollo.dev/link/v1.0")
+          @link(url: "https://specs.apollo.dev/federation/v2.8", import: ["@external"])
+
+        type Position @external {
+          x: Int!
+          y: Int!
+        }
+      `);
+
+      const output = applyTagFilterToInaccessibleTransformOnSubgraphSchema(
+        sdl,
+        buildSchemaCoordinateTagRegister([sdl]),
+        filter,
+      );
+
+      expect(print(output.typeDefs)).toMatchInlineSnapshot(`
+        extend schema @link(url: "https://specs.apollo.dev/link/v1.0") @link(url: "https://specs.apollo.dev/federation/v2.8", import: ["@external"])
+
+        type Position @external {
+          x: Int!
+          y: Int!
+        }
+      `);
+    });
   });
 
   describe('interface type', () => {
diff --git a/packages/services/schema/src/lib/federation-tag-extraction.ts b/packages/services/schema/src/lib/federation-tag-extraction.ts
index 80eaa0be3f..da9e843bf3 100644
--- a/packages/services/schema/src/lib/federation-tag-extraction.ts
+++ b/packages/services/schema/src/lib/federation-tag-extraction.ts
@@ -144,11 +144,6 @@ export function applyTagFilterToInaccessibleTransformOnSubgraphSchema(
     fieldLikeNode: InputValueDefinitionNode | FieldDefinitionNode,
     node: InputValueDefinitionNode,
   ) {
-    // Check for external tag because we cannot contribute directives to external fields.
-    if (node.directives?.find(d => d.name.value === externalDirectiveName)) {
-      return node;
-    }
-
     const tagsOnNode = getTagsForSchemaCoordinate(
       `${objectLikeNode.name.value}.${fieldLikeNode.name.value}(${node.name.value}:)`,
     );
@@ -204,6 +199,7 @@ export function applyTagFilterToInaccessibleTransformOnSubgraphSchema(
 
     for (const node of nodes) {
       const tagsOnNode = getTagsForSchemaCoordinate(node.name.value);
+      const nodeIsExternal = !!node.directives?.find(d => d.name.value === externalDirectiveName);
 
       let newNode = {
         ...node,
@@ -222,7 +218,10 @@ export function applyTagFilterToInaccessibleTransformOnSubgraphSchema(
           }
 
           // Check for external tag because we cannot contribute directives to external fields.
-          if (fieldNode.directives?.find(d => d.name.value === externalDirectiveName)) {
+          const fieldIsExternal = !!fieldNode.directives?.find(
+            d => d.name.value === externalDirectiveName,
+          );
+          if (nodeIsExternal || fieldIsExternal) {
             return fieldNode;
           }