Taxation of Foreign Suppliers in Iraq

Comment

This model of taxation, which is centred around the concept of doing business in Iraq, appears to have a broader and more simplified application than the 'permanent establishment' criterion adopted by the OECD Convention. The OECD Convention focuses on the location and the nature of the place of business, which requires a somewhat sophisticated understanding of the business itself in order to determine whether a permanent establishment exists. On the other hand, the Iraqi authorities appear to be more interested in the location of the most important actions taken by the foreign supplier. So long as many of the key actions taken to conduct business are located outside Iraq or are assigned to Iraq-registered actors, the business profits of the foreign supplier are considered as doing business with Iraq and are not otherwise subject to tax. No further analysis of the business itself need be undertaken.

The OECD Convention specifically excludes the taxation of preparatory or auxiliary services conducted within a particular tax jurisdiction (as this would not necessarily lead to a conclusion that a place of business has been established), whereas the same services would lead to taxation in Iraq for the foreign supplier, as this would be considered as doing business in Iraq (the actions themselves are being performed in Iraq, regardless of their nature). Thus, under Iraqi tax law, there may be a signficant economic connection between a business and Iraq; but if the supplier performs its most important operations from outside the country or by using in-country agents, it is unlikely to incur income tax liability in Iraq.

For further information on this topic please contact Anthony V Raftopol at Iraq Law Alliance PLLC by telephone (+964 7 503 355 079), fax (+20 2 760 4593) or email ([email protected]).