This article considers how US businesses facing Iraqi tax assessments should reconcile offshore invoices with the payment records of their Iraqi customers. An assessment may rely on customer records that do not match the supplier’s invoices because of advances, retentions, exchange rates, credit notes or payments made to another group entity. The response must explain each difference with evidence; an offshore invoice ledger alone rarely answers the authority’s questions.
The framework is the Income Tax Law No. 113 of 1982, which governs assessments, objections and appeals, together with the Contract Tax Accounting Instructions No. 2 of 2008 and other instructions of the General Commission of Taxes. The Iraqi Civil Code No. 40 of 1951 governs the underlying contracts, and the Evidence Law No. 107 of 1979 is relevant if matters reach court. In the Kurdistan Region, the regional tax authority applies its own procedures.
Identifying the assessment and preserving the challenge route
The business should obtain the assessment notice, supporting correspondence and proof of the notification date. It should establish the taxpayer, the tax period and the income or expense adjustments involved. The Income Tax Law provides for objection to the assessing authority and appeal to the appeals committee within short deadlines, and these should be calendared immediately.
A review of tax disputes in Iraq should begin before informal discussions use up the response period. A customer’s promise to clarify its records does not extend a statutory deadline. Submissions and receipts should be recorded so the business can prove which steps it took and when.
Reconciling the contract before the cash
The contracting entities, agreed price, variations and payment mechanism should be identified first. Whether invoices relate to equipment, services or both, and how the customer certified performance, can change the tax treatment significantly. Bank receipts show that money moved but do not explain its tax character.
The reconciliation should separate:
- Advances from payments against completed milestones.
- Gross entitlements from amounts retained by the customer.
- Original invoices from genuine amendments and credit notes.
- Payments to the taxpayer from receipts of another entity.
- Currency differences from real changes in contract value.
Each adjustment should point to supporting documents. A balancing figure inserted to force two ledgers to agree may hide exactly what the authority needs explained. A transaction reference linking certificate, invoice, bank receipt and accounting entry, with consistent translations, makes the reconciliation much easier to follow.
Supply versus services and the place of performance
Iraqi tax practice often treats the supply of goods from abroad differently from services performed in Iraq. Where a contract combines both, the authority may assess the whole contract value unless the allocation between supply and local services is clear and supported. Contracts, invoices and delivery records should consistently distinguish these elements, and the allocation should reflect commercial reality.
Obtaining accurate customer confirmation
The Iraqi customer should be asked to confirm the basis of its certificates and reporting for specific transactions. Where an error is established, a properly issued correction should be obtained rather than an informal assurance that the earlier figure can be ignored, since tax officials will rely on official documents.
A review of commercial contracts and payment obligations in Iraq can clarify whether a disputed amount was due, conditional or cancelled. Acceptance records, variation approvals and settlement agreements often explain differences more effectively than invoices. Public customers may need a formal internal process to correct contractual or financial records.
Presenting the legal position without changing historical facts
The response should link the reconciled amounts to the tax treatment sought, distinguishing factual disagreement from disagreement about the legal character or deductibility of an item. Deductible costs need their own evidence and are not established merely by appearing in consolidated group accounts.
Invoices must not be backdated or descriptions altered to fit the desired outcome. Legitimate corrections should be explained openly with originals retained. Where both federal and Kurdistan Region authorities are involved, filings and payments to each should be identified separately, as one clearance does not resolve obligations in the other.
Keeping the assessment separate from payment recovery
A customer may continue withholding funds while tax issues remain open, but its contractual right to do so needs separate examination. The business may need to pursue the tax objection and a contractual claim for release of retentions in parallel, using consistent evidence in both.
Once the assessment is resolved, the business should take steps to prevent recurrence. Agreeing a standard deduction certificate format with key customers, registering the correct entity and reconciling payments monthly rather than annually can significantly reduce future disputes. A clear internal record of the agreed position also helps when the authority reviews later periods on the same contracts.
Conclusion & how Etihad Law Firm can help
Iraqi tax assessments are best answered with a transaction-by-transaction reconciliation that links contract, certificate, invoice and payment, filed within the statutory deadlines.
As Iraq tax dispute lawyers for US-based companies, Etihad Law Firm prepares reconciliations and objections, represents businesses before the General Commission of Taxes and appeals committees, and pursues related contractual claims against customers, helping US businesses present a coherent evidential case.