Certain tax services do not violate US ban on provision of accounting services in relation to Russia sanctions

By Neil Amato

A U.S. accounting firm is not prohibited by a White House executive order regarding U.S. sanctions against Russia from providing tax advisory and preparation services to the U.S. subsidiary of a Russian company in certain scenarios, according to guidance issued Thursday by Treasury's Office of Foreign Assets Control (OFAC).

On May 8, the United States announced expanded sanctions against Russia in response to the war in Ukraine. Those sanctions 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 had questions about the sanctions' applying to various types of services, including tax-related services, and some clarity has been provided by an update to frequently asked questions (FAQs) posted by OFAC.

The OFAC FAQs describe several scenarios in which services to a non-Russian subsidiary of a Russian person would not be prohibited. Here is question No. 1059:

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?

And the answer:

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."

FAQ 1059 goes on to say 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."

Here are two such scenarios from the FAQ that 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.

However, FAQ 1059 says 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. 

A statement issued May 9 by the Association of International Certified Professional Accountants, the combined voice of the American Institute of CPAs (AICPA) & The Chartered Institute of Management Accountants (CIMA), expressed support for implementing economic and trade sanctions and other measures in response to the Russian military invasion of Ukraine.

"We will continue to monitor the situation to address any further impacts on the profession. Our primary focus remains on members, students, and staff impacted by this war. We are developing and releasing resources to help our members and the broader accounting and finance profession address the urgent economic challenges stemming from sanctions, supply chain disruption, and other issues."

In March, the Association announced an indefinite suspension of services in Russia and Belarus.

Visit the Ukraine-Russia War Resource Center for more information.

— To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.

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