U.S. senators urge Treasury to keep halt on Russia tax talks

WASHINGTON Tue Apr 29, 2014 5:13pm EDT

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WASHINGTON (Reuters) - Two U.S. senators on Tuesday urged the Obama administration to continue refusing to negotiate with Russia over a tax agreement that, if not approved by July 1, could result in Russian banks facing steep penalties.

Talks were suspended weeks ago with Russia over a pact to help its financial institutions comply with 2010's U.S. Foreign Account Tax Compliance Act (FATCA), a Treasury Department spokesperson said on Monday.

FATCA requires banks, insurers and investment funds to give the Internal Revenue Service information about the accounts of Americans and U.S. permanent residents worth more than $50,000. The Treasury has more than two dozen FATCA deals with foreign governments.

"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," said Democratic Senator Carl Levin and Republican Senator John McCain in a letter to the Treasury Department.

"FATCA sanctions provide a powerful, non-military option that, when added to the other financial sanctions already imposed, could help deter Russia from continuing its threatening actions against Ukraine," said the senators.

Levin chairs a Senate panel that regularly investigates international tax dodging of the sort targeted by FATCA, as well as the Senate Armed Services Committee.

To turn up heat on Russia over its role in the Ukraine crisis, the United States on Monday announced a new round of sanctions aimed at business leaders and companies close to Russian President Vladimir Putin.

Financial firms in Russia or any country without a FATCA agreement must register with the IRS and comply with the law on their own.

Sanctioned Russian banks cannot register with the IRS to comply with FATCA, but all other Russian financial firms are allowed to register, the Treasury spokesperson said.

Foreign institutions that fail to comply with FATCA face a potential 30-percent withholding tax on their U.S. source income, a penalty that could effectively freeze them out of U.S. financial markets.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh and Meredith Mazzilli)

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