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On April 29, the Chairman of the Senate Permanent Subcommittee on Investigations, Carl Levin, (D – Michigan) and its Ranking Member, John McCain (R – Arizona), wrote to Treasury Secretary Jack Lew urging the United States Administration to refrain from restarting negotiations with Russia on compliance with the Foreign Account Tax Compliance Act (FATCA).
FATCA, enacted by the US Congress in 2010 and taking effect on July 1, 2014, is intended to ensure that the US obtains information on accounts held at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients will result in a requirement to withhold 30 percent tax on payments of US-sourced income.
To address situations where foreign law would prevent an FFI from complying with the terms of an FFI agreement, US Treasury has developed model IGAs. However, Russia is among the jurisdictions that have not yet negotiated an IGA, and talks on concluding an agreement have already been suspended by the US Administration.
"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," they wrote.
Levin and McCain concluded that "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."
While Russian FFIs (except for those that are already the subject of US sanctions) would still be able to register with the Internal Revenue Service (IRS), it is reported that, subject to a change in Russian legal provisions, they would not be able to share information directly with the IRS or to withhold tax.
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