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Viewing cable 07STATE58461, TAX EXEMPTION FOR DOD CONTRACTORS

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Reference ID Created Released Classification Origin
07STATE58461 2007-05-01 18:12 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Secretary of State
VZCZCXYZ0002
OO RUEHWEB

DE RUEHC #8461 1220443
ZNR UUUUU ZZH
O 011812Z MAY 07
FM SECSTATE WASHDC
TO RUEHBUL/AMEMBASSY KABUL 7293-7294
INFO RUEKJCS/SECDEF WASHINGTON DC IMMEDIATE
RHMFISS/JOINT STAFF WASHINGTON DC
UNCLAS STATE 058461 
 
SIPDIS 
 
SENSITIVE 
 
C O R R E C T E D  C O P Y (SENSITIVE CAPTION ADDED) 
 
E.O. 12958: N/A 
TAGS: AF OFDP
SUBJECT: TAX EXEMPTION FOR DOD CONTRACTORS 
 
REF: KABUL 4447 
 
1. (SBU)  SUMMARY:   The purpose of this cable is to provide 
clear guidance to Post to address issues outlined in reftel 
that have arisen surrounding the interpretation and 
implementation of the Status of United States Military and 
Civilian Personnel of the U.S. Department of Defense Present 
in Afghanistan in connection with the Cooperative Efforts in 
Response to Terrorism, Humanitarian and Civic Assistance, 
Military Training and Exercises, and Other Activities, which 
was concluded by an exchange of notes and entered into force 
on May 28, 2003. 
 
2. (SBU)  Responses to the questions posed in reftel are as 
indicated below: 
 
-  Question:  Would Afghan legal entities that are USG 
contractors or sub-contractors be subject to Afghan 
corporate, personal income, Value Added Tax (VAT), rental, 
excise taxes, and/or import duties?  Are Afghan employees of 
USG contractors and sub-contractors liable for personal 
income, VAT, and excise taxes? 
 
   -  Answer:  Afghan legal entities that are USG contractors 
or sub-contractors and Afghan employees of USG contractors 
and sub-contractors are not subject to the payment of such 
taxes under the terms of the Agreement regarding the Status 
of United States Military and Civilian Personnel of the U.S. 
Department of Defense Present in Afghanistan in connection 
with the Cooperative Efforts in Response to Terrorism, 
Humanitarian and Civic Assistance, Military Training and 
Exercises, and Other Activities (the &Agreement8 or &Note 
No. 2028). The fourth paragraph of the Agreement provides 
that such persons are included within the category of 
personnel and entities that are exempt from taxation.  The 
purpose of the restrictions on taxation in paragraphs four 
and five is to exempt payment of taxes or duties that are in 
effect levied against or passed through to the USG, such as 
import duties or VAT on items obtained by USG contractors or 
subcontractors for the official use of the USG for the 
campaign against terrorism, regardless of the nationality of 
the payor. 
 
-  Question:  Are Afghan landlords who rent living quarters 
and office space to USG contractors and sub-contractors or 
their employees liable for rental tax? 
 
   -  Answer:  Yes.  We find no exemption for such a tax 
under the Agreement as the tax is assessed against the 
landlord, not the tenant, and there is nothing in the 
Agreement that would prohibit the landlord from including the 
tax in the rental amount. 
 
-  Question:  Are the non-Afghan, non-U.S. national employees 
of USG contractors and sub-contractors, whether U.S. legal 
persons or not, subject to personal income, VAT, and excise 
taxes? 
 
   -  Answer:  No.  The USG would object to Afghanistan 
authorities taxing non-Afghan employees of USG contractors 
and sub-contractors who are in Afghanistan pursuant to the 
USG contract. 
 
-  Question:  Is the Agreement meant to apply only to DoD or 
is it to be read to apply to other USG agencies? 
 
   -  Answer:  The Agreement applies only to DoD and its 
contractors.  The scope of the Agreement is contained in the 
first paragraph of Embassy Kabul,s Note No. 202.  It clearly 
states that it applies to "United States military and 
civilian personnel of the United States Department of Defense 
who may be present in Afghanistan in connection with 
cooperative efforts in response to terrorism, humanitarian 
and civic assistance, military training and exercises, and 
other activities." 
 
      -  Although the fourth paragraph of Note No. 202 states 
that the tax exemption applies to &(t)he Government of the 
United States of America, its military and civilian 
personnel, contractor and contractor personnel,8 it was not 
intended that this agreement apply to employees and 
contractors of non-DoD USG entities.  The scope of the 
provisions contained in the opening paragraph govern all 
elements of the respective agreement between the USG and GoA. 
 
 
      -  Although the Agreement only applies to DOD and not 
to other USG agencies, there are, however, other existing 
agreements or arrangements with the GoA that may address 
these issues with respect to USG employees or other non-DoD 
contractors.  For example, the 1951 General Agreement on 
Technical Cooperation provides at Article 3.2, &Any funds, 
materials and equipment introduced into Afghanistan by the 
Government of the United States of America pursuant to such 
program and project agreements shall be exempt from taxes, 
service charges, investment or deposit requirements, and 
currency controls.8  Article 4 provides, &All employees of 
the Government of the United States of America assigned to 
duties in Afghanistan in connection with cooperative 
technical assistance programs and projects and accompanying 
members of their families shall be exempt from all Afghan 
income taxes and social security taxes with respect to income 
upon which they are obligated to pay income or social 
security taxes to the Government of the United States of 
America, and from property taxes on personal property 
intended for their own use(.8  In addition, the GoA entered 
into a series of agreements in 2005 with USAID under which 
USAID contractors and subcontractors are exempted from 
certain taxes.  Additionally, the March 2006 Letter of 
Agreement on Police, Criminal Justice, and Counter-narcotics 
Support Programs makes it clear that foreign contractors and 
subcontractors for these programs are also exempt from some 
taxes.  Of course, future agreements with the GOA could be 
negotiated on this taxation issue. 
 
3. (SBU)  We recognize and sympathize with the GoA Ministry 
of Finance,s concerns about raising revenue necessary to 
meet the International Monetary Fund targets and achieve GoA 
budget sustainability.  USG agencies are working diligently 
with the Afghan Ministries and the international community to 
improve the Afghan economy and ensure continued growth of the 
GoA revenues. 
 
4.  (SBU)  For Post,s information only, the questions raised 
by the GoA have initiated a review of State Department 
foreign assistance contractors/grantees within Afghanistan. 
We are reviewing whether agreements and arrangements in place 
cover appropriate taxation exemptions.  Depending on the 
results of this review, we may need to approach the GoA for 
further discussions on this issue. 
RICE