RECIPROCAL AVIATION TAX EXEMPTION AGREEMENT

UNCLAS KUWAIT 000245

SENSITIVE
SIPDIS

STATE FOR NEA/ARP, EEB/TRA/OTP, EEB/IFD/OIA

E.O. 12958: N/A
TAGS: EAIR ECON EFIN KTIA KU
SUBJECT: RECIPROCAL AVIATION TAX EXEMPTION AGREEMENT

REF: STATE 13098


1. This is an action request.


2. (U) EconCouns and Econoff met with Ministry of Finance
Undersecretary Khalifa Hamada and Omar Welayti, Head of the
Ministry's tax treaties section to discuss reengaging on a
reciprocal aviation tax exemption agreement. They verbally
confirmed that Ministerial Decree Number 108 of 1976 and
Ministerial Order Number 7/1982 dealing with aviation tax
exemptions were still in force "on a reciprocal basis." In
response to EconCouns' proposal that the GoK and the USG
conclude an agreement to formalize the exemption from income
derived from the operation of aircraft, Hamada stated that
the Ministry of Finance would consult with Kuwait Airways to
determine their preference and requested that EconCouns send
a formal request for response via diplomatic note, which post
subsequently did. (Note: EconCouns subsequently raised the
possibility of a reciprocal aviation income exemption with
the President of Kuwait's Civil Aviation Authority, Fawaz
Al-Farah. Farah stressed that the GoK lead for tax
agreements lay with the Ministry of Finance, but that he
generally supported such agreements as a way of improving
aviation cooperation. He promised to raise the issue if/when
he had the opportunity. End Note.)


3. (SBU) Welayti stated his preference for incorporating
aviation tax exemptions in a wider double taxation agreement
(DTA) and asked whether the USG still had the same concerns
about the Kuwait tax system now that the rate had been
reduced to 15 percent. EconCouns noted the GoK's continued
policy of discriminatory tax treatment (i.e., taxing
non-Kuwaitis at a higher rate than Kuwaitis) and noted that
concluding this agreement would benefit companies from both
countries. Hamada committed to reviewing the proposed draft
agreement seriously, but asked that Kuwait's continued
interest in a DTA be put on record. Hamada also briefly
asked whether the USG would be interested in negotiating a
Bilateral Investment Treaty. EconCouns noted that we had
informally shared copies of the U.S. Model BIT text with his
ministry for review and had not received any comments.


4. (SBU) Comment and Action Request: The Ministry of Finance
is in the process of considering the reciprocal agreement,
but is also interested in pursuing a broader DTA. In order
to help move forward on a reciprocal aviation tax exemption
agreement, post requests guidance on how to respond to the
GoK's interest in a DTA. (Note: post has just received a
formal request from the MFA for the latest USG thoughts on a
DTA. End Note.) End Comment and Action Request.

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MISENHEIMER