To the Editor:
I read with interest Marty Sullivan’s recent article arguing against terminating the U.S. tax treaty with Russia, and I respectfully disagree. (Martin A. Sullivan, “Should the United States Terminate Its Tax Treaty With Russia?” Tax Notes Federal, Mar. 7, 2022, p. 1327.)
Sullivan makes three points. First, he correctly notes that Russian investment into the United States will not be affected because it does not flow through the treaty. I would argue (and Sullivan agrees) that the point is to affect U.S. investment in Russia, which benefits the Russian regime, and not Russian investment in the United States, which can be addressed by other measures (such as seizing the assets of the oligarchs in New York or Miami).
Second, Sullivan argues that terminating the treaty is unlikely to affect Putin’s policy in the short term. But in addition to other measures, it may have an impact in the longer term, as did the termination of the South Africa-U.S. treaty. Unfortunately, the invasion of Ukraine is likely to last for a long time.
Finally, Sullivan argues that terminating the treaty is likely to negatively affect U.S. businesses investing in Russia. But that is precisely the point: Many U.S. corporations have withdrawn from Russia in the past week, and given the moral indefensibility of Putin’s behavior, we should be penalizing those that have not, because they directly subsidize the Russian regime, and persuading them to withdraw as well.
More broadly, Sullivan is skeptical of using tax for nontax purposes. I would argue that the corporate tax has always been used primarily as a regulatory device, and there is no difference between using it for foreign policy goals than using it for other non-revenue-raising goals like discouraging pollution or encouraging green investments.
Given the seriousness of the crisis, the United States should consider all means to hurt the Russian regime, including terminating the tax treaty.
Sincerely,
Reuven S. Avi-Yonah
Irwin I. Cohn Professor of Law
University of Michigan
Mar. 5, 2022