Weapons of Mass Destruction:

Some U.S. Assistance to Redirect Russian Scientists Taxed by Russia

NSIAD-00-154R: Published: Apr 28, 2000. Publicly Released: Apr 28, 2000.

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Pursuant to a congressional request, GAO reviewed whether the Russian government has taxed assistance provided by programs that were designed to fund former Soviet weapons scientists, focusing on two programs: (1) the Department of Energy's (DOE) Initiatives for Proliferation Prevention; and (2) International Science and Technology Center in Moscow.

GAO noted that: (1) some of the assistance provided to support the two key U.S. nonproliferation programs that fund collaborative research projects involving former Soviet weapons scientists has been used directly and indirectly to pay Russian taxes; (2) for example, the Science Center and at least one Initiatives for Proliferation Prevention funded institute paid direct value-added taxes on equipment purchased in Russia, while the Initiatives for Proliferation Prevention program paid taxes indirectly through payroll and income taxes on its project participants; (3) according to a 1998 DOE report, a survey of Russian institutes that received Initiatives for Proliferation Prevention project funds from the Sandia National Laboratories indicated that as much as one-half to three-quarters of U.S. assistance received by the Russian institutes were used to pay various payroll and income taxes; (4) Initiatives for Proliferation Prevention program officials could not provide quantifiable data on the total amount of taxes paid by Russian institutes that have received their assistance--however, they have taken corrective action to eliminate the payment of income and payroll taxes; (5) DOE contracted with a U.S.-based tax-exempt organization to provide direct tax-free payments to participating Russian scientists and other staff in November 1999; (6) the International Science and Technology Center, a multilateral organization whose grant recipients have not been subject to income taxes, has paid about $270,000 in value-added taxes for equipment or services purchased in Russia from 1994 through 1999; (7) while DOE does not track taxes paid by institutes receiving program funds, GAO's February 1999 report identified one Russian institute that received Initiatives for Proliferation Prevention funding as having paid value-added taxes; (8) although the Russian government has recently passed legislation that requires reimbursement for all value-added taxes paid using donor assistance, neither the Science Center nor DOE has received any reimbursements; and (9) officials from the Department of State and the U.S. embassy in Moscow are working with Russian government officials to develop implementing regulations that address the reimbursement of value-added taxes and the exemption of certified tax-exempt entities from paying value-added taxes at the time of purchase.

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