Taxes and Immunities

From “Oil Nationalisation and Managerial Disclosure: The Case of Anglo-Iranian Oil Company, 1933-1951”

Chapter 4: Profit distribution by the AIOC

Author : Neveen Abdelrehim | The university of york

Iranians were willing to see the payment terms improved because they were dissatisfied with the massive amount of tax paid to the British government[516]. The Memorandum claimed that British tax should not have been deducted from the profit share of the Iranian Government, and that the company underpaid Iranian tax on its profits because of the immunities it enjoyed. An important moral argument from the Iranian point of view was that Iranians strongly wished to develop their country and get terms as good as, if not better than, those contained in the concessions in other countries[517]. According to Ali Mansur, Iranians found it shocking that Iran, the main source of the AIOC‟s income, receive a negligible share in the profits which was by no means proportionate to the company‟s net profits[518]. The Memorandum clarified that the Iranian government‟s revenue should be exempt from any kind of tax and the amounts which had been withheld by the British government, were to be restored[519]. For a clearer picture, Table (4) presents a comparison of the amount of taxes paid to both the British and the Iranian governments for 1933-1947 inclusive.

As shown in Table (4), the amounts received by the British government in taxation were huge, and not proportionate to the payments received by the Iranian government. Professor Gidel noted that the company paid to the Iranian government £274,412 in 1933 on account of income tax and £305,418 on the same account to the British government whilst in 1947, the amount received on account of taxation by the Iranian government was £765,405 and that received by the British government was £15,266,665[520]. Mr. Ebtehaj, Governor of Bank Melli, reported that the company made large tax payments to the British government and urged Iran to claim a share of these payments[521]. AIOC countered that it could not change British tax provisions, and that the Iranian government enjoyed benefits from AIOC investment which would not have been possible if the company had not been given tax immunity. The company claimed that the royalties paid to Iran were a source of revenue to the Iranians and in return, it argued, the company should receive a substantial proportion of any profits from oil, without which Iran would not have benefited from the AIOC‟s exploration of their oil reserves. Furthermore, AIOC claimed that it should not overlook the existing provisions regarding tax composition; the British Treasury had informed the company that the level of taxation in the UK was a matter for the British government[522]. An important moral argument from the Iranian point of view was that profits earned in Iran were being used to generate profits elsewhere. Gass, the AIOC negotiator, noted that his Iranian counterparts “possessed only a very elementary idea of accounts”[523]. Even so, an analysis of the accounts (Table 5 below) reveals first, that the AIOC was financially self sufficient and did not raise significant new loans or equity capital and second, that it was committing significant resources to capital expenditure in other countries. With or without knowledge of accounting, the diversion of funds outside Iran was quite obvious to both sides of the negotiations.

From the above analysis, the evidence strongly supports Elm‟s conclusion,
endorsed by British Treasury and Foreign Office officials- Britain could not refute Iran‟s claim that the company‟s worldwide business “had been built up on Persian oil”[524]. The AIOC performed commercial activities overseas with the status of a British domiciled company resulting in unfairness of capital payments to Iran when compared with other countries (see Table 5 above). Thus, the Iranian government‟s income from oil was largely confined to taxation, resulting in reduced capital reserves. In short, the company demonstrably found reasons for not changing its currently advantageous tax provisions.

Notes & References
516. BP 070266, Jacks to Fraser on 19th August 1934, 1.

517. BP 126343, Notes on Supplemental Agreement handed by Ali Mansur to Shepherd on 3rd June
1950, 1.

518. Ibid.

519. Gidel Memorandum, 1.

520. Ibid, 5.

521. BP 126407, Report on visit to Tehran 31st August to 26th October 1948, 19.

522. Gidel Memorandum, 7.

523. Bamberg, The History of the British Petroleum Company, 392.

524. Elm, Oil, Power and Principle: Iran’s oil nationalisation and its aftermath, 107.


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