VZCZCXYZ0038
RR RUEHWEB

DE RUEHRB #0521/01 0821405
ZNY EEEEE ZZH
R 231405Z MAR 07
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 6132
INFO RUEHCL/AMCONSUL CASABLANCA 2821

UNCLAS E F T O RABAT 000521 
 
SIPDIS 
 
NOFORN 
SENSITIVE 
SIPDIS 
 
DEPT FOR A/OPR/OS BEA CAMERON, L/BA DAVID GALLAGHER AND 
NEA/MAG 
 
E.O. 12958: N/A 
TAGS: PREL AMGT ASCH PGOV EFIN SCUL MA
SUBJECT: PM ADVISOR CATEGORICALLY REJECTS TAX CONCESSIONS 
FOR U.S. SCHOOLS 
 
REF: A. RABAT 264 
     ¶B. RABAT 171 
 
¶1. (SBU/NF) Summary: In a meeting to follow up on the 
Ambassador's February 7 meeting with Prime Minister Jettou on 
our desire to conclude a school tax agreement governing U.S. 
schools in Morocco, the Prime Minister's Finance Advisor 
Abderrezak Lazrak reiterated the Government of Morocco's 
desire to find a mutually acceptable solution to the problem, 
but stressed that this must include school fulfillment of 
their "tax obligations" and cannot include tax concessions 
for the schools.  He termed the existing state of affairs, 
whereby most of the U.S. schools do not pay payroll or social 
security taxes for their expatriate employees, an 
"aberration" that resulted from "errors in administrative 
management."  He rebuffed efforts to draw parallels between 
American and Spanish and French schools, stressing that the 
latter are government-affiliated entities, and are the 
subject of explicit bilateral undertakings between the 
respective governments.  He did indicate that if imposition 
of taxes imposed an undue burden on the schools, the 
Government of Morocco would be open to negotiating some sort 
of official government support for them to compensate.  This 
must be done through the budget, he said, and not through tax 
concessions.  End Summary. 
 
¶2. (SBU/NF) DCM and Econ Counselor met with Lazrak to follow 
up on the  Ambassador's February 7 meeting with the Prime 
Minister, where Prime Minister Jettou took on board our 
concerns about the financial viability of the schools if they 
were required to pay Moroccan taxes, and said he would ask 
his financial advisors to explore possible options.  Lazrak 
made clear that while some sort of government support for the 
schools could be envisaged, the government is not willing to 
extend tax concessions or a special tax status to the 
American schools.  He reiterated Morocco's previous position 
that expatriate teachers are protected from double taxation 
by the bilateral tax treaty, but do not enjoy any other tax 
privileges.  He characterized the fact that most schools have 
never paid payroll or social security taxes for such 
employees as an "aberration," resulting from "errors in 
administrative management."  If it were possible, Morocco 
would seek to hold responsible those officials who permitted 
such a situation to develop. 
 
¶3.  (SBU/NF) The DCM rejected the notion that U.S. Schools 
had received favored tax treatment for decades as an 
administrative error.  He noted the schools' historic linkage 
to the U.S. diplomatic and military presence in Morocco, 
emphasizing that the status quo resulted from clear, 
high-level decisions by Moroccan authorities to assure the 
schools' presence.  He emphasized the need for U.S. schools 
to be treated similarly to other schools, such as the French, 
even though in the U.S. schools are not operated by the 
federal government, as are the French schools. 
 
¶4. (SBU/NF) Lazrak rebuffed the DCM's argument, noting that 
the French and Spanish schools are government schools 
benefiting from existing bilateral treaties, whose employees 
have official government status.  In contrast, American 
schools are private, and their teachers have the same status 
as a Moroccan professor who teaches in a private capacity in 
the United States.  Just as that professor must pay U.S. 
taxes, so expatriate teachers here are subject to Moroccan 
taxes.  An agreement such as that desired by the U.S., he 
argued, would spark a political uproar in parliament, and 
would also lead to demands from private Moroccan schools for 
similar privileges. 
 
¶5. (SBU/NF) Lazrak conceded DCM's point regarding the 
important contribution that American schools make to the 
bilateral relationship, and to the private education system 
in Morocco that the PM has sought to encourage.  The DCM also 
underscored the importance of the U.S. schools to other 
diplomatic missions and to U.S. investors.  Lazrak repeatedly 
asked, however, why it should matter whether the teachers 
paid tax in the United States or Morocco, since they were 
protected from double taxation.  DCM stressed that while all 
Americans are subject to U.S. taxation on their worldwide 
income, application of Moroccan taxes would force the schools 
to increase salaries, threatening their financial viability. 
Lazrak asked that we document this point by providing 
information on just how heavy a burden the payroll taxes 
would be on the school's budget.  If the amount threatened 
their viability, Lazrak said, the government could consider 
providing some sort of assistance to compensate for it.  He 
stressed, however, that this would not be through the tax 
 
system.  Morocco, he said, is moving away from using such tax 
benefits for policy purposes.  If a cause is worthy of state 
support, he explained, it must be proposed by a Ministry and 
included in the national budget.  Use of tax concessions or 
"fiscality" is no longer possible.  He added that it might be 
possible to consider a transition period to permit the 
schools to adjust to the new situation. 
 
¶6. (SBU/NF) Lazrak was not receptive to the DCM's suggestion 
that the bilateral tax treaty might be interpreted broadly 
enough to exonerate teachers temporarily or permanently from 
payment of Moroccan taxes.  All such treaties are linked, 
Lazrak argued, and if such a precedent were set, others would 
seek to take advantage of it. 
 
¶7. (SBU) Lazrak shared a copy of the paper prepared for the 
Prime Minister before the February 7 meeting, which stated 
inter alia that "American schools are subject to existing 
fiscal legislation, in the same manner as are other 
establishments carrying out the same activities in Morocco, 
except as provided for in the application of the provisions 
of the Convention for non-double taxation....Thus...these 
schools are subject to taxes.  However, they can claim all 
the fiscal advantages accorded to private educational 
institutions..., including exoneration from the patent tax 
for five years, from the start of their activity, and a 
reduction of 50 percent of the company tax (IS) or of the tax 
on professional revenue.  The note added that the bilateral 
cultural agreement of 1967 does not provide for any fiscal 
exoneration in favor of American schools, and went on to 
explain that for these reasons, the tax office has been 
seeking to secure payment by the Casablanca American School 
(CAS) of payroll taxes. 
 
¶8. (SBU/NF) At the conclusion of the meeting, Lazrak and Econ 
Counselor joined the Prime Minister's meeting with the 
Millennium Challenge Corporation and Ambassador Riley, which 
had just begun.  The Prime Minister emphasized that he has 
given instructions that the tax office should take account of 
the reality of the situation and not impose a change on the 
schools without warning.  He said that the schools should 
pay, adding that if (as a parent of four children at CAS and 
a former member of the CAS board) he had realized that they 
were not, he would have "warned them to pay attention."  Tax 
authorities should not seek to collect taxes retroactively, 
however, he added.  In both meetings, we stressed that we 
remain extremely preoccupied by the situation, and will be 
meeting to review the government's position and follow up. 
 
9 (SBU/NF) Comment: Lazrak's strong stance calls into 
question whether an agreement of the sort we desire is 
achievable.  At the very least we will have to up the ante 
and intensify our warnings about the threat to the schools' 
viability and survival.  To the extent that Lazrak did offer 
the creative solution promised by the Prime Minister in the 
February 7 meeting, it was the suggestion that some 
compensatory assistance from the Moroccan government might be 
provided to ease the burden taxes would impose on the 
schools.  Given the range of needs in the Moroccan 
educational system, however, it is hard to imagine the 
Ministry of Education supporting and including in its budget 
an amount that would make a material difference, and that any 
such "assistance" would likely be short-term (5 years was 
mentioned in one discussion) and thus would simply defer the 
problem.  The Mission's school tax agreement goal team will 
meet this week to consider next steps, and to prepare to 
brief the schools on recent developments.  End Comment. 
 
Visit Embassy Rabat's Classified Website; 
http://www.state.sgov.gov/p/nea/rabat 
 
 
Riley