The ruling arises out of a lawsuit filed by the company's subsidiary, Parker Drilling Company International Limited (PDCIL), as a result of an audit of the Kazak branch of PDCIL in July 2001, in which the MSR assessed the branch approximately U.S.$29 million in additional taxes. The assessment was based primarily on the MSR's position that the $100 million received from PDCIL's customer, Offshore Kazakhstan International Operating Consortium (OKIOC), in reimbursement of capital expenditures incurred by PDCIL in making certain modifications to PDCIL's barge rig 257, was taxable income to the branch in connection with the branch's drilling contract with OKIOC. The branch received a favorable decision from the Astana City Court holding that the reimbursements were not income to the branch or otherwise subject to tax in Kazakhstan under the U.S.-Kazakhstan Tax Treaty. The MSR then appealed this decision to the Supreme Court of Kazakhstan.
"Our company's long-term commitment to Kazakhstan has been reinforced throughout this legal process," said Robert L. Parker Jr., president and CEO. "We look forward to continuing our successful partnership with the people of Kazakhstan."
The decision of the Supreme Court affirming the lower court decision dismissed approximately $27 million of the total tax assessment of the MSR. The Supreme Court ruled in favor of the MSR on other issues, the net effect of which is an assessment of approximately $2.3 million against PDCIL. However, since PDCIL is currently in an overpaid position with respect to its Kazakhstan taxes, management anticipates there will be little if any tax liability as a result of this decision.
The MSR has up to one year to appeal the Court's ruling.
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