US Updates the List of Anti-Boycott Countries – Are You Doing Business There?

Under the U.S. Anti-Boycott rules, U.S. persons are probited from complying with certain aspects of unsanctioned foreign boycotts.  The anti-boycott rules include elements in both the Export Administration Regulations (EARs) and the Internal Revenue Service (IRS) regulations.

EAR Rules

The antiboycott laws were adopted to forbid U.S. companies from participating in foreign boycotts that the United States does not sanction. They preventing U.S. businesses from being used to implement foreign policies of other nations which are contrary to U.S. foreign policy.  Currently, the most prevalent boycotts that are contrary to foreign policy are the boycotts of Israel.  Under the EARs, prohibited conduct includes:

  • Agreements to refuse or actual refusal to do business with or in Israel.
  • Agreements to discriminate or actual discrimination against other persons based on race, religion, sex, national origin or nationality.
  • Agreements to furnish or actual furnishing of information about business relationships with or in Israel or with blacklisted companies.
  • Agreements to furnish or actual furnishing of information about the race, religion, sex, or national origin of another person.

The EAR requires U.S. persons to file quarterly reports to disclose any requests to advance an unsanctioned foreign boycott.  If you have been asked to participate in, or take an action in support of, an unsanctioned foreign boycott then you should file a quarterly report on BIS form 621-P for a single transactions or BIS form 6051P for multiple transactions experienced in the same calendar quarter.  The forms are available on-line in a fillable pdf format, or you can also obtain paper copies of the reporting forms by calling the Office of Antiboycott Compliance in Washington, DC at (202) 482-2448.

Tax Reporting Rules

A lesser known aspect of the U.S. antiboycott rules is that any person or business that has operations in, or related to, a country that is known for violating the U.S. anti-boycott rules must report those operations to the Treasury Department.  Such reports are filed with tax returns on IRS form 5713.  This form is also available online.

How do you know whether you are doing business (“operations in or related to”) in such a country?  First of all, the Department of the Treasury publishes a current list of countries which require or may require participation in, or cooperation with, an international boycott.  The current list is:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

In addition, the anti-boycott provisions also require reporting if you are asked to participate in an unsanctioned boycott, even if the source of the request was from a country other than the above-listed countries.

Second, you must assess whether you have operations in or related to one of these affected countries.  The IRS guidance on the subject explains it like this:

The term “operations” means all forms of business or commercial activities and transactions (or parts of transactions), whether or not productive of income, including, but not limited to: selling; purchasing; leasing; licensing; banking, financing, and similar activities; extracting; processing; manufacturing; producing; constructing; transporting; performing activities related to the activities above (for example, contract negotiating, advertising, site selecting, etc.); and performing services, whether or not related to the activities above.

Operations in a boycotting country. You are considered to have operations “in a boycotting country” if you have an operation that is carried out, in whole or in part, in a boycotting country, either for or with the government, a company, or a national of a boycotting country.Operations with the government, a company, or a national of a boycotting country. You are considered to have operations “with the government, a company, or a national of a boycotting country” if you have an operation that is carried on outside a boycotting country either for or with the government, a company, or a national of a boycotting country.

Operations related to a boycotting country. You are considered to have operations “related to a boycotting country” if you have an operation that is carried on outside a boycotting country for the government, a company, or a national of a nonboycotting country if you know or have reason to know that specific goods or services produced by the operation are intended for use in a boycotting country, or for use by or for the benefit of the government, a company, or a national of a boycotting country, or for use in forwarding or transporting to a boycotting country.

If you cooperate with or participate in an international boycott, you may lose a portion of the following:

  • The foreign tax credit (section 908(a)),
  • Deferral of taxation of earnings of a CFC (section 952(a)(3)),
  • Deferral of taxation of IC-DISC income (section 995(b)(1)(F)(ii)),
  • Exemption of foreign trade income of a FSC (section 927(e)(2), as in effect before its repeal), and
  • Exclusion of extraterritorial income from gross income (section 941(a)(5), as in effect before its repeal).

If you suspect that your business relationships may affect your tax liability, then you should consult with a qualified tax advisor for more details.

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About Jason Dickstein
Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. He represents several aviation trade associations, including the Aviation Suppliers Association, the Aircraft Electronics Association, the Aircraft Fleet Recycling Association and the Modification and Replacement Parts Association.

One Response to US Updates the List of Anti-Boycott Countries – Are You Doing Business There?

  1. Pingback: 2014 in review | ASA Web Log

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