Foreign Relations of the United States, 1952–1954, The Near and Middle East, Volume IX, Part 1

886D.2553/1–2352: Despatch

No. 242
The Consul at Kuwait (Duncan) to the Department of State

confidential
No. 40

Kuwait, January 23, 1952.

Ref:

• Kuwait Tels No. 8, November 26, 1951,² No. 12, December 28, 1951;³ Kuwait Despatch No. 39, January 2, 1952.⁴

Subject:

• Finalization of Formal Agreement for Increased Payments to Ruler of Kuwait for Kuwait Oil Production.

As was reported in Kuwait’s Despatch No. 32, November 30, 1951,⁵ and Telegram No. 8, November 26, 1951, memorandum of agreement for fifty-fifty division of profits of oil production in Kuwait was signed on November 26, 1951. The drafting of a formal agreement, the accomplishment of the series of corporate changes required, and the preparation of a decree imposing an income tax to accomplish the collection of the increased payment were to be worked out in London between representatives of KOC and the Ruler’s London representative, Mr. H. A. Kemp. On December 27, Mr. C.A.P. Southwell, Managing Director of KOC and Mr. Kemp made a hurried trip to Kuwait in order to complete the formalities. Mr. Kemp alleged that he had misunderstood from the very beginning the terms of the agreement with regard to date and time of payment of the tax and it was felt necessary to communicate personally with the Ruler immediately in order that final details could be worked out before the end of December.

However incomprehensible such a misunderstanding on the part of Mr. Kemp could have been, it was initially believed, on the basis of a garbled cable received at the Political Agency, that the first taxable year was in question. This was reluctantly reported to the Department. The issue rather was one involving time of payment with, necessarily, the company wishing to assure itself of adequate time for preparation of accounts. The Ruler agreed to the interpretation for time of payment as is included in Article 7 of the Kuwait Tax Decree (Kuwait Despatch No. 39, January 2, 1952) and it was possible to proceed with the formalities for applying the tax (Kuwait Tel. No. 12, December 28, 1951).

Possibly the most deeply concerned over the prospect of delay of finalization of the agreement was the manager of the British Bank of Iran and the Middle East. He was primarily concerned with handling the 100,000,000 Rupee payment scheduled as settlement of claims prior to December 1, 1951, and had made commitments and preparations based on the relative certainty that payment would be made by the end of the year.

Mr. C. J. Pelly, the Political Agent, performed a very rush job in connection with the issuance of the income tax decree inasmuch as under the treaty relationship and particularly the assumptions of jurisdiction under the Order in Council, the British Government asserts extra territorial rights covering, for example, the Kuwait Oil Company and, in addition to the company’s political agreement, protecting it from the imposition of a tax relatively confined in its application. Over the weekend of the 29th, and through exchange of highest priority cables, authority was obtained from the Secretary of State in the Foreign Office for the Political Resident in Bahrain to promulgate a regulation removing the exemption of the KOC from the jurisdiction of the Ruler of Kuwait in this particular; and the practical effective date of the agreement was thus, as originally scheduled, December 1, 1951.

Enoch S. Duncan

2. Not printed; it reported the agreement on payments by the Kuwait Oil Company to the ruler of Kuwait had been signed on Nov. 26; and the final agreement was basically the same as the proposal of July 6, 1951, except that foreign taxes would not be deducted before the Kuwait tax was levied. (886D.2553/11–2651)

   For the July 6 proposal, see telegram 178 from London, July 10, 1951, in Foreign Relations, 1951, vol. v, p. 324.

3. Not printed; it reported the Managing Director of the Kuwait Oil Company and the ruler’s representative arrived in Kuwait on Dec. 27 to discuss the alleged misunderstanding of the date from which the Kuwait tax was to be applied. (886D.2553/12–2851)
4. Not printed; it transmitted an English language text of a decree by the ruler of Kuwait imposing the income tax decree which was to implement the agreement with the Kuwait Oil Company. (886D.112/1–252)
5. Not printed; it contained further information on the developments reported in telegram 8. (886D.2553/11–3051)