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royalties on behalf of Esso. The proposed model provided that
Esso "shall be exempted from the Income tax in the A.R.E."
In March 1973, Esso submitted proposed modifications to the
agreement, including modifications to the tax provisions to make
clear that Esso was liable for Egyptian income taxes. Esso also
proposed language describing the calculation of Esso's taxable
income for Egyptian income tax purposes and stated that EGPC
would pay Esso's taxes out of EGPC's share of crude oil and
provide Esso with official receipts evidencing payment of Esso's
taxes. Neither the EGPC model agreement given to Esso nor the
revised draft agreement Esso presented to EGPC contained any
reference as to how EGPC's taxes would be computed.
In late March, a revised proposal was submitted by Esso,
including both English and Arabic versions. Neither version had
a provision pertaining to the computation of EGPC's taxes.
On April 3, 1973, EGPC responded to the revised proposal by
complaining that it would have nothing left after paying
royalties, Esso's taxes, and its own tax liability, and asked
Esso to accept a smaller share of production.
Esso determined that EGPC had not deducted taxes paid on
behalf of Esso in its sample calculations and on April 6, 1973,
informed EGPC that "this tax amount would be deductible in
calculating EGPC's taxable income." Further, "Thus with royalty
expensed, EGPC would have a net income * * * after paying
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