A plan to increase financial pressure on Russia beyond sanctions imposed by the Biden administration is currently being developed by Senate Finance Committee Chairman Ron Wyden, D-OR. Provisions under discussion would eliminate tax breaks for wealthy Russians connected to the government and companies that support President Vladimir Putin by denying foreign tax credits and deductions for taxes paid to Russia and Belarus.
“The Finance Committee is continuing to develop these and other proposals to hold Russia accountable for its bloody invasion,” Wyden said in a March 11 statement.
There are a number of tax provisions that provide benefits to foreign persons with income connected to the United States. For example, tax treaties provide lower withholding tax rates on payments such as dividends and interest. Under Wyden’s proposal, a number of these tax benefits would be eliminated for identified persons, subjecting any recipient to the full U.S. tax on the income, typically a 30% withholding tax on payments.
In addition, he proposes providing the Treasury secretary with authority to identify other individuals and entities to create a backstop that ensures those not subject to sanctions face financial penalties if appropriate.
A second provision calls for eliminating the preferential global intangible low-taxed income (GILTI) rate on Russian and Belarusian income, and denying FTCs and deductions for taxes paid to Russia and Belarus. Code Sec. 901(j) eliminates the lower GILTI rate and disallows FTCs for income earned in countries supporting terrorism or without diplomatic relations with the United States. According to Wyden, countries that are participating in or materially supporting the invasion of Ukraine would be added to this list. While current law delays application for six months once a country is listed, this would be reduced given the urgency of the war in Ukraine.
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