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Sen. Wyden Seeks to End Tax Breaks for Companies Doing Business in Russia, Belarus

Ruth Singleton
Published Date:
Mar 14, 2022

Ron Wyden 450

Sen. Ron Wyden (D-Ore.), the chair of the Senate Finance Committee, announced on Friday that he is working on policies that would eliminate tax breaks for U.S.-based companies doing business in Russia and Belarus, as well as for Russian and Belarusian individuals and entities that earn income in the United States, Accounting Today reported. His proposal would represent an additional form of financial pressure against Russia, and its ally Belarus, in response to Russia's invasion of Ukraine.

Under his proposal, individuals and entities that are listed by the Office of Financial Assets Control (OFAC) would initially lose their tax benefits, and Treasury Secretary Janet Yellen would have the authority list additional ones subject to the penalty, including the governments of Russia and Belarus. 

U.S. corporations that earn income and pay taxes to Russia or Belarus currently receive two significant tax benefits: the preferential Global Intangible Low-Taxed Income (GILTI) tax rate of 10.5 percent, 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 this list. While Section 901(j) delays its application for six months once a country is listed, this period would be reduced, given the urgency of the war in Ukraine. A deduction for those taxes would also be denied to ensure that American taxpayers aren’t subsidizing revenue received by Russia and Belarus in any way. 

The Hill reported that, in  2018, U.S. companies paid $130 million in Russian taxes on $890 million in taxable income, based on IRS foreign tax credit records.

With regard to individuals, Sen. Wyden pointed out that a number of tax provisions provide benefits to foreign persons with income connected to the United States, 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, generally a 30 percent withholding tax on payments. 

The Biden administration has been increasing its economic pressure on Russia in response to the invasion of Ukraine in several ways. On Friday, it revoked Russia’s “most favored nation” trading status, which would enable the United States and its allies to impose higher tariffs. It also banned imports of Russian seafood, alcohol and diamonds, and  the export of luxury goods to Russia.

“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,” Sen. 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.” 

According to Accounting Today, removing these corporate tax breaks could 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,” Sen. 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."

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