Without agreement, Russian banks face 30 percent tax on U.S. investments
Tuesday, April 29, 2014
WASHINGTON – Sens. Carl Levin, D-Mich., and John McCain, R-Ariz., today urged the Obama administration to continue to refrain from further negotiations with Russia on compliance with the Foreign Account Tax Compliance Act until Russia ends its aggressive and destabilizing actions toward Ukraine.
Russia is among nations that have not yet reached FATCA compliance agreements with the United States. Banks that fail to comply with FATCA are subject to a 30 percent withholding tax on U.S. investment income, including earnings on U.S. Treasury securities that are an integral part of the global financial system. Senators McCain and Levin believe that at this time of mounting tension in Ukraine, the U.S. should use more tools in its tool kit – including FATCA – to further deter Russian aggression.
“We should not be negotiating with the Russians to help them avoid FATCA’s sanctions at a time when Russian forces are threatening and continuing to destabilize Ukraine,” Levin and McCain write in a letter to Treasury Secretary Jack Lew. Refraining from negotiations for Russian banks to avoid the 30 percent FATCA penalty “would place financial pressure upon Russia, and help reinforce diplomatic efforts to avoid military action.”
Levin is chairman of the Senate Armed Services Committee and of the Permanent Subcommittee on Investigations, which has extensively explored the use of offshore banks in avoiding U.S. tax compliance. McCain is ranking member of the Permanent Subcommittee on Investigations and a member of the Armed Services and Foreign Relations committees.
The text of their letter follows:
April 29, 2014
The Honorable Jacob Lew
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Mr. Secretary:
The purpose of this letter is to urge the U.S. Department of the Treasury to continue to refrain from negotiating with either the Government of Russia or certain Russian banks regarding compliance with the Foreign Account Tax Compliance Act (FATCA), until the Russian Government honors its diplomatic obligations and takes steps to diffuse tensions in the Crimea and Ukraine, including by withdrawing Russian troops from the border region.
According to recent press reports, the Treasury Department recently suspended negotiations with the Russian Government over how Russia’s more than 800 banks, as well as its other financial institutions, will comply with FATCA’s disclosure obligations. If those financial institutions fail to register with the Internal Revenue Service and obtain a Global Intermediary Identification Number (GIIN) by July 1, 2014, they will be out of compliance with FATCA, and will become subject to a 30 percent withholding tax on any U.S. investment earnings.
We should not be negotiating with the Russians to help them avoid FATCA’s sanctions at a time when Russian forces are threatening and continuing to destabilize Ukraine. Declining to negotiate GIIN assignments needed to avoid imposition of a 30 percent tax on U.S. investment income paid to Russia’s financial institutions would place financial pressure upon Russia, and help reinforce diplomatic efforts to avoid military action. If we do choose to negotiate, we should at least ensure that negotiations do not benefit those Russian financial institutions that have substantial Russian government funds, or have Russian government officials on their boards or in their leadership, or otherwise help support disruptive activities in the Crimea or Ukraine.
FATCA sanctions provide a powerful, nonmilitary option that, when added to the other financial sanctions already imposed, could help deter Russia from continuing its threatening actions against Ukraine.
Thanks for your consideration.
Carl Levin John McCain