The_Open_Door_deel1

-177-
'••:] Sales Agreement between L.M.C and Republic Steel; (d) specified
Ij the company's indebtedness and the financing of the investments
|| out of the capital of the company, as of July 31, 1952. The
ll agreement further (e) stipulated the corporate income tax rates
if which L.M.C would pay in the future on its "net profits", and
|| (f) mentioned the following items as being deductable from the
ll company's operating income in computing the taxable net income
Ij of L.M.C :
SSi - all operational, promotional, and selling expenses
I (including all expenses in respect of labour, in-
¥i surance, transportation and handling, capital equip-
! ment, tools, etc.);
j - a provision for depreciation and obsolescence of movable
, and immovable capital goods;
\ - costs of laboratory and mineral research, sampling and
j analysis and, in general, exploration and development
.) expenses as incurred each year;
] - commissions and fees;
•j - idle time expenses;
: - interest payments and debt-amortization;
j - reasonable reserves for replacement, expansion and
: development and other contingencies;
I - royalties, exploration and surface taxes, port, harbour
i and bridge charges, tolls and fees, duties and taxes;
i - any loss sustained in the proceeding five fiscal years;
- all other proper expenses incurred in connection with
the business operations;
I
| while it was explicitly stated that "in determining "Net
j Profits" all accounting procedures will be in accordance with
| general accepted accounting practices" (42).
•j One of the main issues disputed between L.M.C. and the
;• Government of Liberia was the company's practice of making
I provisions for replacement, expansion, development and
•:| contingencies and deducting these amounts from the company's
j profits before arriving at the taxable profits (normally these
provisions are made out of net profits after taxes) though this
. had been done in accordance with the Collateral Agreement.
: However, taxable profits had also been charged with the
depreciation of assets which had been financed with the reserves
thus formed; this had also been allowed by the Collateral
I Agreement. Although the combination of deductions seemed to have
been in accordance with the terms of the Collateral Agreement the
. Government objected to these practices arguing that it could not
:] be said that charging expenditures twice before arriving at
: profits was in accordance with general accepted accounting
practices (43)- L.M.C. admitted that the beneficiation plant and
facilities which had been constructed in the late 195O's had been
• •] financed with funds derived from the provisions for development,
:| expansion, etc., a total amount of construction costs of
|| $ 10,738,000.00 which had resulted in a loss of government