Identifier
Created
Classification
Origin
07EFTORABAT171
2007-01-31 11:59:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Rabat
Cable title:  

SCHOOL TAX AGREEMENT UPDATE

Tags:  PREL AMGT ASCH KREC MO 
pdf how-to read a cable
VZCZCXYZ0002
RR RUEHWEB

DE RUEHRB #0171/01 0311159
ZNY EEEEE ZZH
R 311159Z JAN 07
FM AMEMBASSY RABAT
TO SECSTATE WASHDC 5721
UNCLAS E F T O RABAT 000171 

SIPDIS

NOFORN
SENSITIVE
SIPDIS

DEPT FOR A/OPR/OS BEA CAMERON, L/BA DAVID GALLAGHER,
NEA/MAG AND NEA/EX

E.O. 12958: N/A
TAGS: PREL AMGT ASCH KREC MO
SUBJECT: SCHOOL TAX AGREEMENT UPDATE

UNCLAS E F T O RABAT 000171

SIPDIS

NOFORN
SENSITIVE
SIPDIS

DEPT FOR A/OPR/OS BEA CAMERON, L/BA DAVID GALLAGHER,
NEA/MAG AND NEA/EX

E.O. 12958: N/A
TAGS: PREL AMGT ASCH KREC MO
SUBJECT: SCHOOL TAX AGREEMENT UPDATE


1. (SBU/NF) Summary: Following completion of consultations
with Department offices and the five officially supported
American schools in Morocco, Mission has moved to engage
senior GOM officials on the issue of concluding a bilateral
agreement to give the schools legal status and shield them
from Moroccan taxes, including payroll and social security
taxes. Ambassador spoke directly to Prime Minister Jettou
about the issue, and provided Jettou a follow-on letter with
a description of what the Mission is seeking, i.e., tax
treatment of the American schools that provides parity to
that enjoyed by French and Spanish schools in Morocco. (Text
of Ambassador's letter follows in para 10.) The Prime
Minister expressed confidence that a solution to the issue of
the schools' long-term status could be found, and asked to
meet with the Ambassador to discuss the matter in greater
detail after he had had an opportunity to review the issue
with relevant ministries.


2. (SBU/NF) One senior Moroccan businessman, who serves as a
trustee of one of the schools, suggests that the window of
opportunity for conclusion of such an agreement could close
with Jettou's departure from office, which may occur
following elections later this year (date for the elections
has not yet been determined, but most likely time frame is
the fall). While most of the concerned American schools in
Morocco that would benefit from an agreement (Rabat,
Casablanca, Tangiers, George Washington Academy and Marrakech
schools) report no difficulties with Moroccan officials, our
initiative comes against the backdrop of intensifying efforts
by Casablanca tax authorities to collect back payroll taxes
from the Casablanca American School (CAS). End Summary.


3. (SBU/NF) Building on post's October 30 DVC with Washington
offices, post used the ensuing six weeks to meet with the
five concerned American schools for a comprehensive review of
their specific situations and concerns in preparation for
moving forward with discussions with Moroccan officials. As
expected, the meetings revealed a range of approaches to the

problem of operating in an environment with no clear legal
framework, with the schools falling into two broad categories
regarding the key question of payroll and social security
taxes. While all five schools paid Moroccan social security
taxes for their local Moroccan employees, both the Casablanca
and Rabat American Schools do so via the Embassy Cooperative
Association, officially registering their local staff as ECA
rather than school employees. Those two schools also do not
pay Moroccan payroll taxes for either local or expatriate
employees. In contrast, the Tangier American School, its
Marrakech offshoot, and the George Washington Academy (GWA)
pay both payroll and social security directly for their local
employees. The Tangier and Marrakech schools also pay
Moroccan payroll taxes for their American staff, but they
make contributions to FICA through their American foundation
for them, rather than pay Moroccan social security taxes.
George Washington Academy does not pay either payroll or
social security taxes for its expatriate employees, but does
hold back a sum sufficient to cover one year of payroll taxes
as a reserve.


4. (SBU/NF) All the schools agreed that an agreement clearly
defining and effectively limiting their obligations vis-a-vis
the Moroccan state is essential to allow them to plan
effectively for the future, and pressed for any such
agreement to shield them to the maximum extent possible from
imposition of Moroccan taxes. Ideally, both Rabat and
Casablanca American Schools argued, such an agreement should
ratify the status quo whereby the schools are effectively
exempt from Moroccan payroll and social security taxes. Both
schools reluctantly conceded that it might prove impossible
to shield their local Moroccan employees from taxation, but
they urged that the effort be made nonetheless.


5. (SBU)/NF) Though the schools concurred on the need for an
agreement, only the Casablanca American School reported any
effort by Moroccan tax authorities to press for payment of
payroll taxes for school employees, noting that a September
2006 tax letter was put off with Congen Casablanca
assistance. Indeed, at year's end Casablanca tax
authorities renewed their efforts to collect allegedly due
back taxes, sending a letter to the school warning that
unless payment was made immediately, the 3.35 million USD
"owed" by the school for payroll taxes for 2002-2005 would
automatically increase by 10 percent to 3.68 million USD. No
such approach has been made to the Rabat American School or
George Washington Academy. The American Schools in Tangier
and Marrakech, which make the payroll tax payments, did
report efforts by social security inspectors to receive
formal documentation justifying their refusal to pay Moroccan
social security taxes.



6. (SBU/NF) Recognizing that an agreement along the lines
desired by the schools will require a political decision by
the Moroccan government, and cannot be secured at a technical
level (as our earlier negotiations in 2004 demonstrated),
post's school tax agreement goal team recommended that the
Ambassador raise the issue with the Prime Minister Jettou,
himself a trustee of the Casablanca American school.


7. (SBU/NF) In a recent conversation in Casablanca with the
Consul General, a senior and well-connected Casablanca
businessman who is a trustee of the CAS school board agreed
with Mission's strategy. Conclusion of an agreement along
the lines desired by the U.S. would require a political
decision, he said, and he warned that involvement of the
Finance Ministry early in the process would be
counterproductive, given its exclusive focus on augmenting
Morocco's collection of tax revenues. He noted that
Casablanca Mayor Mohammed Sajid had raised the CAS school tax
issue with the Prime Minister, and that Jettou had said he
would "fix it." This observer agreed that the U.S. should
press for full exemption of school employees from Moroccan
taxation at the outset, but conceded that at the end of the
day it would likely not be possible to shield Moroccan
national employees. He speculated that the current pressure
on the Casablanca American School stems from the fact that
George Washington Academy is paying tax on its employees, and
warned that including GWA in an agreement "weakens" the U.S.
negotiating stance. He added that it is important that an
agreement be reached before this fall's elections, as a
future Moroccan government may not be as "sympathetic" to the
schools' concerns.


8. (SBU/NF) Ambassador Riley approved the goal team's
recommendation and raised the issue of a bilateral school
agreement in a phone conversation with Prime Minister, who
agreed to meet in the near future to discuss the subject in
depth, after investigating it with relevant ministries.
Ambassador followed up with a letter setting out in more
detail U.S. concerns and our desire to ratify the status quo
via a formal agreement. Recognizing that the status quo
varies from school to school, the letter pressed for
formalization of the regime that has in practice been applied
to the Rabat and Casablanca American schools, arguing that
this "unwritten agreement" has served the needs of both
Morocco and the schools themselves over the course of their
45-year history. The Ambassador highlighted the importance
of the American schools to international investors and the
support that the U.S. provides them (862,000 USD in one
recent scholarship program with the Rabat American School) to
enable Moroccan students to attend for whom the school would
otherwise be inaccessible. The letter also drew a parallel
with the privileges accorded to Spanish and French schools in
Morocco, noting that while our national systems are
different, the schools serve the same function, and should
enjoy similar privileges.


9. (SBU/NF) Comment: The ball is now in the Prime Minister's
court, and we are hopeful that a meeting on the issue will be
scheduled in the near future. Once it occurs, we will extend
our contacts on the subject through relevant parts of the
Moroccan government. End Comment.


10. (SBU) Text of Ambassador Riley's letter to Prime Minister
Jettou:

Dear Mr. Prime Minister,

Further to our telephone conversation this morning, I
appreciate your willingness to meet in the near future to
discuss the status of the five State Department-supported
American schools in Morocco.

As you know, since the founding of the Rabat American School
in 1962, these institutions have played an important role in
building bridges between the United States and Morocco.
Their contribution is reflected in the distinguished roster
of their alumni, including senior American diplomats and many
high-ranking Moroccan government officials. Recognizing the
contribution the schools make to cross-cultural understanding
this year the U.S. government has granted $862,000 to the
Rabat American School to enable it to provide scholarships to
Moroccan students who would not otherwise be able to attend
the school.

I believe that in this era of globalization and international
competition for foreign direct investment, the schools play a
more important role than ever, as leading multinationals are
often reluctant to invest when there is not a range of

international educational options for their expatriate
personnel.

I am concerned, however, that the schools' ability to
continue to fulfill their function may be in jeopardy. For
the 45 years of their history, the schools have operated on
the basis of an unwritten agreement between the U.S. and
Moroccan governments, which has effectively exempted them
from payment of a number of Moroccan taxes, thereby enabling
them to make their education accessible to students not just
from the international diplomatic and business communities,
but also to many Moroccan students as well.

Recent efforts by Moroccan tax authorities to enforce payment
of payroll taxes by one school call into question that
unwritten agreement. The U.S. schools agree that a formal
accord outlining the schools' obligations and status is
necessary to allow them to plan effectively for the future
and to grow as institutions.

I believe such an agreement should provide the U.S. schools a
status similar to that of French and Spanish schools and
teachers in Morocco. This would provide the schools with a
legal personality under Moroccan law and effectively codify
the unwritten understanding that has governed their operation
in the past.

I understand that the situation is complicated by the fact
that the American education system is very different from
that in France and Spain, given its lack of central
administration and direction, but believe the schools and
their personnel should receive similar benefits and
protections, since they provide the same service.

I look forward to discussing this issue with you in more
detail in the weeks ahead, but wanted to take the opportunity
to highlight my concerns in advance of that meeting.

Sincerely,
Thomas T. Riley

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Riley