PEPSICO DELEGATION CONSULTS WITH EMBASSY ON TAX

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