Treasury Issues Guidance on Providing Accounting Services to U.S. Subsidiaries of Russian Companies
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) recently issued guidance clarifying that United States accounting firms are not prohibited by a White House executive order concerning U.S. sanctions against Russia from providing tax advisory and preparation services to U.S. subsidiaries of Russian companies in certain situations.
The expanded sanctions, which were issued in May in response to the war in Ukraine, prohibited "U.S. persons from providing accounting, trust and corporate formation, and management consulting services to any person in the Russian Federation," according to a White House statement. Practitioners then raised questions about the sanctions' applying to different types of services, including tax-related services. In an update to its frequently asked questions (FAQs), OFAC details a number of scenarios in which services to a non-Russian subsidiary of a Russian person would not be prohibited.
Question No. 1059 asks: Does the determination made pursuant to Executive Order (E.O.) 14071 on May 8, 2022, "Prohibitions Related to Certain Accounting, Trust and Corporate Formation, and Management Consulting Services" ("the determination"), prohibit U.S. persons from providing services to persons located outside of the Russian Federation that are owned or controlled by persons located in the Russian Federation? The FAQ says no, provided that the provision of services is not an indirect export to a person located in the Russian Federation. For the purposes of this determination, OFAC interprets the "indirect" provision of the prohibited services to include when the benefit of the services is ultimately received by a "person located in the Russian Federation.”
Question No. 1059 then states that OFAC "would not consider to be prohibited the provision of services to a non-Russian company that has a physical presence and operations outside of the Russian Federation, including such a company owned or controlled by persons located in the Russian Federation, provided that the services will not be further exported or reexported to persons located in the Russian Federation."
The FAQ clarifies that the following would not be prohibited under the determination:
- A U.S. accounting firm provides tax advisory and preparation services to the U.S. subsidiary of a Russian company. This U.S. subsidiary has an office and employees in the United States and conducts business in the United States, and the services will not be exported or reexported to the Russian parent company.
- A U.S. management consulting firm provides strategic business advice to the subsidiary of a Russian company located in a third country. This subsidiary has an office and employees in the third country and conducts business in this third country, and the services will not be reexported to the Russian parent company.
The FAQ also states that the following would be prohibited:
- A U.S. corporate service provider administers a trust established under the laws of a U.S. state, where the trust exists predominantly to hold, sell, or purchase assets on behalf of a settlor, trustor, or beneficiary who is an individual ordinarily resident in Russia.
- A U.S. corporate service provider registers a limited liability company in a third country on behalf of an individual ordinarily resident in Russia for the purpose of holding real estate assets, and this company has no other physical presence or operations in the third country.
In March, the Association of International Certified Professional Accountants (AICPA) announced an indefinite suspension of services in Russia and Belarus and has been encouraging the Treasury to create more specific guidance, particularly around tax compliance issues, in the wake of U.S. sanctions against Russia. For more information, visit the AICPA’s Ukraine-Russia War Resource Center.