Representatives of Netherlands-based Supreme Group, the U.S. military's main food supplier in Afghanistan, were attending a routine meeting at the Afghan Revenue Department on Tuesday as part of continuing negotiations over the company's tax bill. A witness said the meeting ended unexpectedly when officials from the Afghan Attorney General's office told the Westerners they were being arrested in connection with Supreme's unpaid taxes.
"The prosecutors asked, 'Are you going to pay your taxes?' " the witness said. "And…then these two officers with guns came in and they immediately started to take everybody's phones."
Officials in the Afghan Finance Ministry and Attorney General's office confirmed the arrests of the contractors, who are British, French and Dutch, but didn't respond to requests to discuss the reasons for the arrests. The Western contractors were taken to a detention facility in Kabul and held overnight before being released late Wednesday, Supreme said.
The arrests and similar tax disputes threaten to cast a pall over U.S.-Afghan relations at a particularly sensitive moment: U.S. troops are accelerating their withdrawal, bringing an end to an internationally financed reconstruction boom.
Faced with a drop in revenue, the Afghan government recently launched audits of major contractors to the U.S. military, saying that Supreme and similar logistics firms are abusing their contractor status to illegally bring taxable goods to engage in commercial activities.
Under a series of bilateral accords, U.S. government contractors are generally exempt from taxation in Afghanistan. Supreme says it operates in accordance with those agreements.
In a statement to The Wall Street Journal, the company said the arrests were "a serious violation of immunity rights and an overt attempt to extort funds in the name of taxation.…Our employees were arrested against their will, without due process and in contravention of international diplomatic law."
The differing interpretation of Afghan tax liability has created enormous worry for U.S. military contractors, who continue to provide a wide range of essential services for the U.S. military as it withdraws, from maintaining and repairing military hardware to guarding bases and delivering supplies.
"We're pleased that the Supreme employees detained yesterday have been released today," said U.S. Navy Lt. Jeffrey Gray, a spokesman for the U.S.-led International Security Assistance Force, in a statement issued late Wednesday. "ISAF expects that Afghan officials will continue to work with ISAF contractors to resolve any issues in a manner consistent with the Military Technical Agreement between ISAF and the government of Afghanistan."
Representatives of the contracting sector said the arrests could send a chilling signal to private companies operating in Afghanistan, particularly as the Afghan government hopes to attract more investment.
Stan Soloway, the president and CEO of the Professional Services Council, a U.S. trade group, said in a statement that Supreme's employees "were inappropriately detained simply because they refused to pay taxes the company does not owe and that are clearly prohibited under international, bilateral and other agreements to which the Afghan government is a signatory."
Contractors operating in Afghanistan routinely complain that they are often subject to arbitrary treatment by Afghan authorities, who present them with unexpected fees and penalties for doing business in the country. Afghanistan routinely ranks at the bottom of transparency rankings for government corruption.
Underscoring the difficulties of doing business in Afghanistan, U.S. officials on Tuesday said they cancelled an official tour of a mining exploration site because of an apparent billing dispute between a U.S.-contracted aviation firm and the Afghan government.
Officials had planned to fly Afghanistan's mining minister, Wahidullah Shahrani, to a tour a drilling and exploration site at North Aynak, southeast of Kabul. But airport officials in Kabul wouldn't permit the entourage access to the helicopter landing area.
A U.S. official said the U.S. government and its prime contractor had paid their bills in full, but the local Afghan partner working with the U.S. contractor had failed to pay fees for ramp space, and Afghan officials blocked access.