Iraq kickbacks not bribes, but tax deductions

THE Australian Taxation Office has declared that the millions of dollars AWB funnelled to Saddam Hussein's regime in the lead-up to the Iraq war were not bribes, and can therefore be claimed as a tax deduction.

THE Australian Taxation Office has declared that the millions of dollars AWB funnelled to Saddam Hussein's regime in the lead-up to the Iraq war were not bribes, and can therefore be claimed as a tax deduction.

The finding means that AWB was within its rights to claim the kickbacks as a cost of doing business with Saddam, and the Government forgoes $90 million in potential tax income.

AWB, which is fighting for its corporate life over the scandal, received the news yesterday, andput out a statement saying: "Payments made by AWB under the UN oil-for-food program do not constitute bribes to foreign publicofficials for the purposes of the Income Tax Assessment Act 1997."

It means the tax office plans no further action against AWB. The threat of drawn-out legal action, and the potential for up to $400million in back taxes, fines and interest, have disappeared.

In New York, outgoing UN Secretary-General Kofi Annan said the kickbacks, involving 2200 companies across the globe, were one of his great regrets.

The UN refused to act despite repeated warnings that Saddam's regime was rorting the program and demanding kickbacks.

At his last news conference, Mr Annan said UN staff mismanaged the program and "there may have been several UN staff members who were engaged".

"But the scandal, if any, was in the capitals and with the 2200 companies that made a deal with Saddam," he said.

The tax office refused to comment on its finding yesterday.

Peter Costello said the matter was out of his hands. "I'm sorry, I don't have a view," the Treasurer said. "If the Cole inquiry had found that they were bribes, it would have recommended that they be prosecuted for bribery. Apparently it didn't."

Commissioner Terence Cole made no findings on tax matters, saying it was "beyond the technical and resource capacity of this inquiry to conduct a detailed investigation" into the tax treatment of the kickbacks. He drew "to the attention of the Commissioner of Taxation the fact that this matter has not been the subject of any inquiry by me".

But elsewhere in his report, Mr Cole said the payments were "not unlawful in Iraq". They were banned under UN sanctions, which Iraq did not recognise. Mr Cole said the fact they were "not unlawful in Iraq" and were made at the direction of the Iraq government meant they could not be characterised as bribery of foreign officials.

Mr Costello said: "I accept the Cole inquiry. I'll have to read carefully what the tax office has said but the probabilities are they're bound by the Cole inquiry." He added: "There should be no tax deduction for a bribe. That's my view and that's what we put into the law."

The ruling came as farmers continued to rally across the country to save the single desk for wheat exports. AWB was stripped of its right to veto applications by rival exporters in the wake of the Cole inquiry.

The tax office launched its investigation after the inquiry questioned the way AWB treated the payments it made to Iraq in its accounts.

In its statement yesterday, AWB said it had "received written confirmation today from the Australian Taxation Office stating that the ATO has finalised the AWB Group business audit for the years ended 30 September 2000 to 2004 inclusive in relation to payments under the oil-for-food program".