US embassy cable - 05KUWAIT729

UNCLAS KUWAIT 000729 
 
SIPDIS 
 
STATE PASS TO USTR - JFENNERTY 
 
E.O. 12958: N/A 
TAGS: BEXP, EFIN, ETRD, KU 
SUBJECT: PEPSICO DELEGATION CONSULTS WITH EMBASSY ON TAX 
CASE 
 
 
1.  (U) Ambassador met with PepsiCo representatives on 
February 16, 2005 to discuss a tax judgment against PepsiCo 
that they are fighting in Kuwaiti courts.  In October 2004, 
the Court of First Instance upheld the Kuwait Department of 
Income Tax (DIT) determination that the former local Pepsi 
bottling company acted as an agent of PepsiCo in Kuwait, 
making PepsiCo liable for income taxes on any profits made by 
the bottling company during 1996-2001.  PepsiCo argues that, 
in fact, under the Kuwaiti legal definition, the local 
bottling company did not act as an agent on their behalf, but 
merely as a buyer of their products.  The case is now before 
the Court of Appeals.  If upheld, PepsiCo will be required to 
pay $5 million in back taxes.  DIT has also appealed the 
court's decision, asserting that PepsiCo owes back taxes from 
1974. 
 
2.  (U) Aware of PepsiCo's situation prior to the 
delegation's arrival, the Ambassador told them of the 
Embassy's efforts on their behalf.  The Ambassador discussed 
their case with Mahmoud Al-Nouri, Minister of Finance, on 
February 6, 2005.  He also gave the Minister a non-paper 
outlining the situation.  On February 15, 2005 he spoke with 
the Prime Minister's Economic Advisor Youssef Al-Ebraheem 
about the court case and gave him a copy of the same 
non-paper.  The Foreign Commercial Officer also addressed 
this issue with the Assistant Undersecretary of Commerce and 
Trade in an earlier meeting. 
 
3.  (U) The delegation met with several Kuwaiti officials 
during their visit to Kuwait, including the Kuwait Chamber of 
Commerce, the American Business Council, the Minister of 
Commerce and the head of the parliamentary Finance Committee. 
 
4.  (U) Post will continue to work closely with PepsiCo to 
help resolve this matter. 
LEBARON