Global warming is one of the biggest threats humans face in the 21st Century and sea levels are continuing to rise at alarming rates. What problems are associated with this and what are some possible solutions.

1. Overview and Background:

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Ard

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Al-

Futtaim

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For General Trading

Company

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Ltd.

(

Accept space

(

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Ard

Suggestion

Al-

Futtaim

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) was established on May 30th, 2012 in Baghdad – Iraq. The entity has ceased the operations and the

company

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has an

intercompany

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loan

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balance

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its

balance

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sheet as payable to the parent

company

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.

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Ard

Suggestion

Al

Futtaim

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is not in a position to repay the

loan

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balance

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due to it does not have adequate

cash

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and is making losses. The

loan

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was given by

Ard

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Al

Futtaim

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’s shareholder ‘Select Auto’ which holds 100% shares in

Ard

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Al

Futtaim

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. The extract of the 2018 financial statements as reflecting the below: Description Amount (In IQD) Extract Of Accumulated Losses 5,798,662,980

Balance

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Sheet

Account

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code 22 Short Term Loans 5,318,545,830

Balance

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Sheet

Account

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code 242 2. Discussion Due to the landscape is complicated and not very easy in Iraq, the options for the

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intercompany

Suggestion

loan

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waiving should be discussed and decide for the pre-preparation of the liquidation stage. The

loan

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offset options had been summarized under three options. 2.1. Netting of the previous

year accounting

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year, accounting

losses against to

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intercompany

Suggestion

payable

/

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loan

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From the audit

standpoint

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(accounting or presentation of financial

statement

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), the

transaction

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itself easy in terms of accounting adjustment in two

balance

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sheet accounts.

However

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, in the meantime, there is some

kind

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of documentation to be put in place, if

this

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transaction

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is questioned,

in other words

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, it should able to

kind

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of support. As per Deloitte

practice

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and

experience

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in another

company

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which located in Kurdistan Region - The shareholder meeting is needed where the branch manager as well should be involved, -

This

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meeting minutes should be attested by the

company

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register in Iraq From the

tax

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legislation

standpoint

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, there should be no

tax

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payable

since

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for

the

transaction

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doesn’t have any P&L

impact

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.

This

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kind

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of

transaction

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doesn’t occur very often as per the Iraqi

Tax

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Legislation, but as

Deloitte

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a Deloitte experience

experience

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in Iraq Kurdistan Region, it’s possible to execute without any

tax

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burden.

However

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, the

Ard

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Al

Futtaim

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is located

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are located

in the Federal Iraq region, both authorities have the same

approach

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with slight changes, but it indicates that

this

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option

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can apply in the same

approach

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. 2.2. Capitalization of the

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intercompany

Suggestion

payable

/

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loan

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The Capital Increase scenario can be challenging, due to

this

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option

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has not been tested in Iraq as per Deloitte

experience

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.

On the other hand

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,

this

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process should be very much administered by the lawyer and legal teams. There may be some certain conditions; -

the

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The

capital increase may require to prove that sufficient

cash

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balance

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need to keep in the

bank

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account

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-

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such

Suggestion

Such

kind

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of a capital increase (without injecting the

cash

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for capital increase), it cannot be ensured whether can be implemented in Iraqi

practice

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or not, - From the accounting and legal

standpoint

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,

this

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option

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may be challenging Since

Ard

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Al

Futtaim

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does not have

this

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cash

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balance

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in the

bank

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account

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,

this

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option

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may be considered in the future. To pursue

this

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option

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in the future,

this

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option

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is highly required

cash

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transfer through the

bank

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account

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to prove

/

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show it as a

balance

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in the

bank

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account

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could be a deal-breaker. 2.3. Waiver to

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intercompany

Suggestion

payable

/

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loan

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balance

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From the audit

standpoint

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(accounting or presentation of financial

statement

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), the

transaction

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may not require many formalities and the easiest

option

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from

this

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view. From the

tax

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point of view,

such

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a

transaction

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routed through the

income

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statement

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may trigger the

tax

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implication.

This

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option

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can be seen as a

benefit favor

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benefit, favour

benefit favour

the parent

company

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by

Suggestion

with

the

Tax

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Authority

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and it should be recognized as taxable revenue. In

practice

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, the

tax

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authority

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has the deemed profit

approach

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which treats 20% of the revenue generated from the main activities and 100% of the other

income

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as

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at

the corporate

tax

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base. According to the deemed profit

approach

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, the waiver of the

loan

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can be seen as one of the

transaction

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, it may not be correlated with the main activities of the

company

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by the

tax

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authority

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. In

this

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case, the

transaction

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amount will be treated as 100%

taxable

Suggestion

tax

revenue. So,

this

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option

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carries the highest financial burden potential in terms of

tax

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legislation varying 3% (20% x 15%) to 15%. Waiving the

loan

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is the least

favorite

something regarded with special favor or liking

favourite

because it has the P&L

impact

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and it may trigger the

tax

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impact

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. 3. Conclusion & Recommendation The options had been discussed, accounting & audit, corporate

tax

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, and legal

standpoint

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. In the light of the aforementioned discussions, it’s agreed to focus the energy and effort on the

first

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option

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.

Tax

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Point of view, since

this

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transaction

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has not an

income

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statement

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impact

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, we do not anticipate any

income

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or

tax

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to be raised from

this

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transaction

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. Since the advance assessment has not been implemented in Iraq Legislation, the only possibility is the submission of the

tax

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the return and financial

statement

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and leave it to the

tax

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authority

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to provide its own feedback on the

tax

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liability. As per Deloitte’s

experience

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in the

practice

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, the

tax

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inspectors very likely to focus on

income

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statement

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items rather than

balance

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sheet items, since usually, they can trigger more

taxability

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. Due to the main concentration on the

income

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statement

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, relatively

option

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one (netting of the previous

year accounting

Accept comma addition

year, accounting

losses against the

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intercompany

Suggestion

loan

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) has the least risk for additional financial &

tax

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burden and it carries

the low

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the lowest

lower

risk of

tax

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authority

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being aware of

this

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transaction

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.