Tax Sanctions And The Russia-Ukraine Conflict

Andrew T. Hayashi (Virginia; Google Scholar) & Ashley Deeks (Virginia; Google Scholar), Tax Sanctions and the Russia-Ukraine Conflict:

The Russian invasion of Ukraine in 2022 provoked the imposition of economic sanctions that are unprecedented in their swiftness, severity, and novelty. In this essay, we evaluate the possible role of tax law as another sanctions tool for addressing the Russia-Ukraine conflict and discuss a recent legislative proposal to impose tax sanctions.

Conclusion
When we wrote about the need for tax sanctions in January 2022, our primary concern was the need to find alternative points of leverage over foreign targets that would broaden the reach of U.S. sanctions and reduce the pressure being exerted through traditional financial sanctions, which risked divestment from the U.S. financial system and currency over the long term. More generally, we saw the possibility of making more favorable tradeoffs between foreign policy goals and domestic concerns through tax sanctions and through sanctions rules that allowed for finer calibration.

In light of these concerns, developments in sanctions in 2022 were encouraging. The innovation of an adjustable oil price cap as a mechanism for balancing concerns about global energy prices and inflation with the need to reduce Russia oil revenues reflects exactly the kind of calibrated pressure that makes tax sanctions appealing. And as the Treasury Department builds out the capacity to do the economic analysis necessary to maximize the effectiveness of the cap, we hope that the value of this expertise will become apparent and make tax sanctions—which will require similar economic analysis to be most effective—even more attractive.