July 11, 2016 | Policy Brief

Taxing American Businesses that Partner with Iran

July 11, 2016 | Policy Brief

Taxing American Businesses that Partner with Iran

American businesses have been looking to break into the Iranian market ever since the signing of last summer’s nuclear agreement, the Joint Comprehensive Plan of Action (JCPOA). Major firms, including now Boeing, have inked deals in the Islamic Republic, and some are worth billions. The White House, in a bid to prevent Tehran from reneging on the nuclear agreement, is working hard to ensure that these deals go through, despite Iran’s unchanged status as a State Sponsor of Terrorism and a jurisdiction of primary money laundering concern. But even with executive backing, these businesses could run afoul of the taxman.

Last September, then-Chairman of the House Committee on Ways and Means Paul Ryan (R-WI) wrote President Obama asking whether after signing the JCPOA, the administration would commit to not waiving existing tax provisions that apply to Iran as a state sponsor of terrorism. The president declined to respond. In November, the committee’s Subcommittee on Oversight held a hearing examining the tax-code provisions targeting terror-sponsoring regimes in light of Tehran’s continued support of terror and other illicit activities. Senior committee members then introduced legislation to deter doing business with Iran and other sponsors of terrorism.

The No Dollars for Ayatollahs Act, sponsored by subcommittee chairman Peter Roskam (R-IL), seeks to impose a 100-percent excise tax on U.S. persons and companies helping facilitate dollar-clearing transactions that directly or indirectly benefit Iran. The bill’s goal is to safeguard the international financial system from exploitation by Iranian entities that previously exploited banks to launder money or have engaged in other illicit activity.

The Preventing Investment in Terrorist Regimes Act, sponsored by Tax Policy Subcommittee Chairman Charles Boustany (R-LA), would greatly strengthen the existing tax provisions targeting state sponsors of terrorism. It would double the tax rate on income derived from Iran and other terror-sponsoring countries, while also ensuring that U.S. taxpayers don’t subsidize taxes paid to Tehran through tax credits or deductions.

The bill also broadens the narrow Internal Revenue Service definition of income derived from a terror-sponsoring country, including income from selling airplanes to such countries. This would ensure that companies investing in Iran or facilitating financing of projects within the country are not subsidized by the U.S. government, and that their profit calculations include the broader harmful effects of investing in the Islamic Republic.

Both tax provisions would apply to those doing business with partners that have not been formally sanctioned by the United States. And unlike some other sanctions, these measures would apply equally to U.S. companies using their foreign subsidiaries to do business with Tehran. Finally, any company doing business in Iran is now on notice that these provisions would apply to deals they enter starting now, even if the bills were not to be enacted until next year.

In short, despite some of the questionable steps already taken by the executive to encourage investment in Iran, these initiatives from Congress’s senior tax writers convey a clear message to U.S. companies: investing with a state sponsor of terror remains risky business.

Note: This policy brief is aimed at reviewing policy initiatives on the Hill. FDD does not lobby for specific pieces of legislation.

Tyler Stapleton is deputy director for congressional relations at the Foundation for Defense of Democracies.