Is listing annexed territory listed in author details a valid reason to decline to review?
Since you ask for a framework for thinking about it, I'll suggest that an action on your part that disadvantages the author, perhaps already a victim, won't bring justice. Probably better to ignore that detail and focus on what the author says, and honestly give the usual feedback. 

If you want to try to deal with the unfairness of the annexation, there are other places that would be more appropriate and effective. 

But your review is independent of any concept of "legitimization". You are giving a service to an author and a journal, not the occupying country.