Senate Finance Committee chair Ron Wyden, D-Oregon, said Friday he is developing policies that could remove some tax benefits available to Russian and Belarusian individuals and entities that earn income from the U.S., as well as U.S.-based multinational companies that do business in those countries.
For individuals, he noted that a number of tax provisions provide benefits to foreign persons with income connected to the U.S., such as tax treaties that offer lower withholding tax rates on dividends, interest and other payments. Under Wyden’s proposal, some of these tax benefits would be eliminated, subjecting any recipient to the full U.S. tax rate on the income, typically a 30% withholding tax on payments.
Individuals and entities listed by the Office of Financial Assets Control would initially lose their tax breaks, and the proposal gives Treasury Secretary Janet Yellen the authority to list more individuals and entities subject to the penalty, including the governments of Russia and Belarus. Providing the Treasury with the authority to identify other individuals and entities would create a backstop to ensure those not subject to OFAC sanctions would face financial penalties if that’s appropriate.
Multinational corporations could also lose out under the proposal. If a U.S. corporation earns income and pays taxes to Russia or Belarus, they currently receive two significant tax benefits: the preferential Global Intangible Low-Taxed Income (GILTI) tax rate of 10.5%, and a foreign tax credit (FTC) that offsets U.S. taxes dollar-for-dollar. Section 901(j) of the Tax Code eliminates the lower GILTI rate and disallows FTCs for income earned in countries supporting terrorism or without diplomatic relations with the United States. These countries are currently Iran, North Korea, Syria and Sudan.
Under Wyden’s proposal, countries that are participating in, or materially supporting, the invasion of Ukraine would be added to the list. While under current law, Section 901(j) delays application for six months once a country is listed, this period of time would be reduced given the urgency of the war in Ukraine. A deduction for those taxes would also be denied to ensure American taxpayers aren’t subsidizing revenue received by Russia and Belarus in any way.
The moves come as the Biden administration increases its economic pressure on Russia in response to the invasion of Ukraine, revoking Russia’s “most favored nation” trading status on Friday, which would enable the U.S. and its allies to impose higher tariffs. The administration also banned imports of Russian seafood, alcohol and diamonds on Friday, and banned the export of luxury goods to the country.
“The Biden administration has taken strong steps to swiftly implement sanctions against Russia, but we must do more to impose a severe economic cost on Vladimir Putin and those providing him with resources to continue this unprovoked and increasingly brutal assault on Ukraine,” Wyden said in a statement Friday. “We need a comprehensive response that turns up the financial pressure from every angle. Russian oligarchs and companies supporting Putin shouldn’t be getting tax breaks in the United States. We should take away every special tax benefit for all sanctioned individuals, as well as give Secretary Yellen the authority to identify other individuals, companies or governments supporting the invasion that should lose their tax goodies.”
The removal of corporate tax breaks could potentially provide some extra leverage, at least economically, to help end the conflict. “The United States should not subsidize a single dollar of taxes paid to Russia, which will be used to fund this cruel war,” Wyden added. “If U.S. companies choose to keep paying taxes to Russia — taxes that are funding the bombing of hospitals for women and children — they should do it without a penny of help from American taxpayers. The Finance Committee is continuing to develop these and other proposals to hold Russia accountable for its bloody invasion.”
