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