VZCZCXYZ0013
PP RUEHWEB

DE RUEHTU #0156/01 0771108
ZNR UUUUU ZZH
P 181108Z MAR 09
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 6091
INFO RUCNMGH/MAGHREB COLLECTIVE

UNCLAS TUNIS 000156 
 
SENSITIVE 
SIPDIS 
 
CORRECTED COPY 
 
E.O. 12958: N/A 
TAGS: ASCH PGOV PREL TS
SUBJECT: TUNIS AMERICAN SCHOOL FACES TAX CRISIS, STATUS 
QUESTIONS 
 
REF: A. TUNIS 0001 
     ¶B. 08 TUNIS 1135 
     ¶C. CIRCULAR 175 
 
¶1. (SBU)  SUMMARY AND ACTION REQUEST:  The future of the 
American Cooperative School of Tunis (ACST) is threatened by 
a Tunisian tax assessment of US $6.5 million.  The assessment 
flies in the face of 50 years of practice and diplomatic 
exchanges on the school,s status.  A formal bilateral accord 
is essential to secure the school,s future.  In this 
message, we summarize the school,s situation and Mission 
actions to address the problem.  We appreciate NEA Acting DAS 
Hudson raising the issue with the Tunisian Charge recently in 
Washington.  We ask that the Department use future 
opportunities, including the arrival of new Tunisian 
Ambassador Mansour, to emphasize the importance of a fair and 
amicable resolution of the ACST tax question and the need for 
a clear bilateral accord to establish the school,s status 
once and for all.  END SUMMARY AND ACTION REQUEST. 
 
¶2. (U)  ACST began, literally, in a basement when a group of 
parents came together to provide English-language education 
to American children in 1959.  A half-century later, it is a 
well-established institution offering an accredited Pre-K - 
Grade 12 American education to over 500 students including 
Americans (20 percent), Tunisians (10 percent) and children 
of 67 other nationalities.  As the only English-language 
school in Tunisia, the ACST serves the dependents of many 
diplomatic missions, international organizations and 
multinational companies.  Notably, dependents of employees of 
the African Development Bank (AfDB) make up 40 percent of the 
student body. 
 
¶3. (SBU)  Throughout its history, ACST has operated under the 
auspices of the US Embassy in the eyes of both the Tunisian 
and American Governments.  Putting that general understanding 
into practice has sometimes been problematic, however, in the 
absence of any specific bilateral agreement concerning the 
school, unlike counterpart institutions associated with other 
diplomatic missions.  A 1963 educational and cultural accord, 
often cited by both sides in diplomatic notes and other 
correspondence concerning the school, can be interpreted to 
include the school but is too vague to offer much guidance. 
Some GOT officials, notably at the Ministry of Finance, say 
that it does not apply to ACST, even though in writing they 
refer to it as the basis for many of their past actions, 
including VAT exoneration as recently as last year. 
 
¶4. (SBU)  A call from a local official responsible for 
private schools led to an October 30 meeting to discuss the 
school,s status with representatives of the Ministry of 
Foreign Affairs (MFA) Protocol, Legal and Americas Desks, the 
Ministry of Finance (MOF) and the Ministry of Education.  The 
school was represented by the Director, Business Manager, and 
Board President (Embassy Information Officer) accompanied by 
the DCM.  That meeting underscored the murkiness of the 
school,s status and Tunisian concern for the implications of 
that status on the tax obligations of the school and its 
employees.  The meeting also provided the opportunity to 
highlight previous Embassy efforts to resolve this issue, 
including a draft bilateral accord submitted in 2001 that 
went unanswered. 
 
¶5. (SBU)  The MFA meeting ended with the Chief of Protocol 
suggesting a period of reflection before the next of what was 
sure to be many future discussions.  Nevertheless, the next 
day the school received written notice of a pending fiscal 
audit by the Ministry of Finance (MOF).  Soon thereafter, 
long-standing armed Tunisian police security details and 
rush-hour traffic police support at the school were 
discontinued without explanation.  The school attempted to 
postpone the audit until such time as the school,s status 
was resolved, but the audit went ahead beginning November 24. 
 
¶6. (SBU)  In the meantime, in consultation with the 
Department, the Embassy dusted off the 2001 draft bilateral 
accord and submitted an updated and newly-cleared version to 
the MFA on November 26.  The Ambassador and other Embassy 
officials reached out to Tunisian officials and other 
diplomatic missions to encourage the Government of Tunisia 
(GOT) to resolve the school,s status questions quickly and 
amicably. 
 
¶7. (SBU)  The school received the MOF audit report December 
¶26.  The audit through the 2007 fiscal year determined that 
the school owed, including penalties, some US $6.5 million 
(9.1 million Tunisian dinars), or approximately one year,s 
gross revenue.  About half of this total was claimed for 
withholding taxes from the salaries of overseas-hired 
(foreign) employees, despite the fact that a specific 
exoneration from such taxes was referenced in a 1984 
diplomatic note.  Another approximately US $1 million was 
claimed for VAT exemptions duly approved by the MFA via the 
Embassy for the American school (and clearly stated as such) 
in line with 50 years of past practice.  The school admits to 
some errors and oversights in its withholding from local 
employee salaries, failure to charge VAT on cafeteria and bus 
services, and some other taxes totaling approximately US $1 
million.  However, ACST and the Embassy strongly contest the 
majority of the audit,s findings as a retroactive reversal 
of the privileges accorded to the school by the GOT for 
almost 50 years. 
 
¶8. (SBU)  While the school pursued an appeals process in 
consultation with its legal and financial advisors, the 
Embassy increased efforts to engage the Tunisian authorities 
on the issue, including the Ambassador raising the matter 
with the MFA Chief of Staff on December 30 and with the 
Minister of Foreign Affairs on January 18.  The Ambassador 
briefed AfDB President Kaberuka on February 6 and the German, 
British, French and Canadian ambassadors on February 11, 
asking all of them to raise the issue with the GOT.  The AfDB 
President was particularly concerned given the school,s 
critical importance to his institution.  He has raised the 
issue with the Minister of Finance and other senior Tunisian 
government officials.  The DCM has also met with the Chief of 
Protocol.  The German Ambassador has indicated he will raise 
the matter soon, as well.  The Mission also raised the issue 
via diplomatic note on February 12 and the Ambassador did so 
again in a meeting with the Foreign Minister on February 18. 
 
¶9. (SBU)  In late February, at the school,s request, the 
Ambassador wrote a letter to the Minister of Finance asking 
that the final decree be postponed to allow the parties time 
to reach an amicable settlement.  Separately, the Ambassador 
requested a meeting with Minister of Finance, which was held 
March 3.  At the meeting, the Minister restated the MOF 
position that in the absence of a bilateral agreement the 
school should be treated and taxed as any other private 
school in Tunisia.  The Ambassador replied that our bilateral 
educational and cultural agreement did apply, and that the 
GOT had recognized the school's status in 50 years of 
diplomatic exchanges and practice.  He added, however, that 
the US believes a clear bilateral accord is needed on the 
school to resolve these issues once and for all for the 
future.  The Minister agreed to postpone the final decree and 
offered for a delegation from the school to meet directly 
with the Director General of Fiscal Controls to come to an 
agreement. 
 
¶10. (U)  At the March 10 meeting between a delegation from 
the school and the Director General of Fiscal Controls, it 
was clear that the tax issue cannot easily be resolved 
without a clear determination of the school,s status.  In 
the absence of clarification from the MFA or a specific 
bilateral accord, the MOF is attempting to fit ACST into its 
existing tax categories, which do not take into account the 
language of diplomatic notes or 50 years of past practice. 
The school, for its part, seeks a comprehensive settlement 
that will serve to clarify its past, present and future 
status.  Both parties agreed that it will be difficult to 
reach a solution without further guidance, but the MOF noted 
that the final taxation decree cannot be postponed 
indefinitely.  On March 17, the Embassy transmitted another 
diplomaic note requesting discussions on an accord to setle 
the school's status once and for all. 
 
¶11. SBU)  COMMENT:  ACST will have serious financial 
problems if it is com 
pelled to pay $6.5 million in ack 
taxes.  It may even be compelled to close it doors.  At a 
minimum, tuition and fees would inrease dramatically and 
school instruction and services would be curtailed. AfDB 
President Kaberuka has suggested that the ank, at least, 
would have great difficulty payin.  The closure, or dramatic 
downsizing, of ACST ould not only be a blow to the US 
mission but to the America and international communities in 
Tunsia as well.  The Embassy appreciates NEA Acting DS 
Hudson raising the school issue with the Tunisan Charge in 
Washington.  We ask that the Departent use all available 
opportunities to continue t press the GOT to resolve the tax 
issue fairly ad amicably and to negotiate a bilateral accord 
o ACST.  END COMMENT. 
Godec