In Much-Awaited Move, U.S. Treasury Removes United Arab Emirates From List of Boycotting Countries

Under Section 999 of the Internal Revenue Code of 1986, as amended, U.S. taxpayers must generally report on Internal Revenue Service (IRS) Form 5713 (a) operations in or related to a country listed on the Treasury List as well as in other countries if the taxpayer knows or has reason to know that participation in an international boycott is required as a condition of doing business within such country, (b) the taxpayer’s participation in or cooperation with an international boycott, and (c) any requests to participate in or cooperate with an international boycott (whether from a Treasury List country or elsewhere) as well as the taxpayer’s response to those requests. A taxpayer’s participation or cooperation in an international boycott results in certain tax detriments, such as loss of the right to claim foreign tax credits and inability to defer taxes on the income earned from such activities, and a willful failure to report may result in a fine of not more than $25,000, imprisonment of not more than a year, or both.

As a result of the UAE’s removal from the Treasury List, U.S. taxpayers will no longer be required to report their operations in the UAE on Form 5713 with their annual boycott reporting in future taxable years.

Although the UAE is now treated as any other country that is not on the list, boycott requests from the UAE and boycott agreements with and actions for UAE persons are still subject to the reporting requirements and penalties set forth above with respect to nonlisted countries. For example, requests to participate in a boycott, to refuse to do business with persons on the blacklist (a list of persons who refuse to participate in the boycott), or to discriminate against a boycotted country or its persons continue to be reportable and penalizable. In addition, U.S. persons remain required to report boycott-related requests to the U.S. Department of Commerce, which administers a separate antiboycott regime and considers the Treasury List an illustrative, rather than exhaustive, list of boycotting countries.³ The Commerce Department continues to maintain a lengthy list of examples of prohibited boycott requests from the UAE.⁴

The impact of this change on businesses’ antiboycott compliance programs is likely to be substantial. In 2018, the latest year for which the IRS published boycott-related statistics, the UAE accounted for approximately half of all boycott requests reported to the Treasury Department from Treasury List countries and for more than a third of all boycott requests reported by U.S. persons from any source.⁵  Because requests specifically referencing the boycott will continue to be prohibited by Commerce, penalizable by Treasury, and reportable to both agencies, the most important effect of the UAE’s removal will be in how companies may respond to a request to comply with, abide by, or obey the laws of the UAE generally when the boycott is not explicitly mentioned. The Treasury Department requires U.S. taxpayers to report language of this kind as a boycott request when received from a boycotting country, and it penalizes such agreements. Now that the UAE is no longer considered a boycotting country (unless the taxpayer knows otherwise), taxpayers may broadly agree to comply with the UAE’s laws without the request’s triggering antiboycott reporting or tax detriments. (The Commerce Department does not prohibit agreeing to language of this kind, nor is this language reportable to Commerce.)

¹ List of Countries Requiring Cooperation with an International Boycott, 86 Fed. Reg. 18374 (Apr. 8, 2021), https://www.federalregister.gov/documents/2021/04/08/2021-07244/list-of-countries-requiring-cooperation-with-an-international-boycott (“The UAE has been removed from this list due to issuance of Federal Decree-Law No. 4 of 2020, which repealed its law mandating a boycott of Israel, and the subsequent actions that the UAE government has taken to implement the new policy”).

²Sidley, UAE Ends Participation in Arab League’s Boycott of Israel; How to Understand Continuing U.S. Antiboycott Obligations (Sept. 2, 2020)

³Violations of the antiboycott provisions in the Commerce Department’s Export Administration Regulations can result in criminal penalties of up to 20 years of imprisonment and up to $1 million in fines per violation or both. Administrative monetary penalties can reach up to $300,000 per violation or twice the value of the transaction, whichever is greater.

⁴Office of Antiboycott Compliance, Examples of Recent Boycott Requests, https://www.bis.doc.gov/index.php/all-articles/7-enforcement/1755-examples-of-recent-boycott-related-requests.

⁵Internal Revenue Service, SOI Tax Stats – International Boycotts Table 1, https://www.irs.gov/statistics/soi-tax-stats-international-boycotts-table-1 (select 2018).