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II. Expropriation Issue
A. Description of the Issue
On September 19, 1977, Kuwait terminated the concession
enjoyed by Aminoil to explore for and exploit certain natural
resources in a Kuwaiti frontier area known as the Neutral Zone
and expropriated certain of Aminoil’s assets in Kuwait. Aminoil
protested the termination of the concession and the
expropriation, and Aminoil and Kuwait entered into an agreement
to arbitrate the resulting dispute. A tribunal was established
to carry out that arbitration, and, on March 24, 1982, the
tribunal made an award to Aminoil in the amount of $179,750,764.
Kuwait honored the decision of the tribunal and paid Aminoil the
award on July 1, 1982 (the $179 million payment). The reasoning
of the tribunal precedes its statement of the amount of the award
and indicates that the tribunal reached that amount by steps.
First, the tribunal determined the sum of Aminoil’s debts to
Kuwait and the sum of certain amounts due Aminoil from Kuwait.
The difference of those two sums was a net amount in Aminoil’s
favor. The tribunal then determined the total amount due Aminoil
by adding to the subtotal it had determined (1) an interest
amount and (2) an amount described as a “level of inflation”
amount (10 percent of the amount due compounded from the
expropriation date to the date of the award). For purposes of
taking the award into account for Federal income tax purposes,
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