• Tax Office guidelines for understanding and dealing with the bribery of Australian and foreign public officials


    These guidelines, which draw heavily on the OECD Bribery Awareness Handbook for Tax ExaminersExternal Link, are designed to provide tax officers with:

    • increased awareness of the legislative provisions disallowing a deduction for a loss or outgoing that is a bribe to an Australian or foreign public official
    • practical ways to identify how a taxpayer may be concealing bribe transactions to an Australian or foreign public official
    • advice on record keeping and audit techniques where bribery is suspected
    • guidance for the referral of information to the Private Groups and High Wealth Individuals business line where it is suspected that bribe payments may or have been made
    • information on how to obtain information from our tax treaty partners.

    If tax officers hold any doubts on interpretation in relation to the application of these guidelines advice should be sought from the Tax Counsel Network.


    The Australian government, as a signatory to the Organisation for Economic Cooperation and Development (OECD) convention on combating bribery of foreign public officials in international business transactions (the convention), is committed to a whole-of-government approach to addressing the incidence of bribes to foreign public officials in business transactions. The convention also allows for the OECD to review the implementation of the convention by signatory countries.

    Phase 1 of the OECD review occurred in 1999 and, amongst other outcomes, resulted in the enactment of section 26–52 ‘Bribes to foreign public officials’ of the Income Tax Assessment Act 1997 (ITAA 1997). Section 26–53 ‘Bribes to public officials’ of the ITAA 1997 was also enacted via government initiative at a similar time. These provisions specifically disallow deductions for any loss or outgoing determined to be a bribe to a public official and became effective from the 1999–2000 income year.

    Phase 2 of the OECD review was completed in January 2006. Included in the Phase 2 report was a recommendation that the ATO prepare these guidelines to assist tax officers in identifying non-deductible amounts that have been claimed for bribes to foreign public officials by:

    • better understanding how they can be concealed
    • identifying bribe payments to foreign public officials
    • highlighting the legislative provisions denying deductibility for bribe payments, and
    • including a requirement that tax officers report all information (intelligence, suspicions or actual) of bribery of foreign public officials to the Private Groups and High Wealth Individuals (PGH) business line.

    Although the convention is only concerned with combating bribery of foreign public officials, these guidelines also have application to bribes made to Australian public officials.

    Legislative provisions

    The relevant legislative provisions in respect of bribes are sections 26–52 (bribes to foreign public officials) and 26–53 (bribes to public officials) of the ITAA 1997.

    Section 26–52 – bribes to foreign public officials

    Section 26–52 of the ITAA 1997 specifically denies deductibility to a taxpayer for a loss or outgoing that is determined to be a bribe to a foreign public official.

    Refer to the full text of section 26–52 of the ITAA 1997.


    Division 995 of the ITAA 1997 adopts the definition of foreign public official under section 70.1 of the Criminal Code Act 1995 (Criminal Code). The full text of the definition of foreign public official in section 70.1 of the Criminal Code is as follows:

    Foreign public official means:

    • an employee or official of a foreign government body, or
    • an individual who performs work for a foreign government body under a contract, or
    • an individual who holds or performs the duties of an appointment, office or position under a law of a foreign country or part of a foreign country, or
    • an individual who holds or performs the duties of an appointment, office or position created by custom or convention of a foreign country or of part of a foreign country, or
    • an individual who is otherwise in the service of a foreign government body (including service as a member of a military force or police force), or
    • a member of the executive, judiciary or magistracy of a foreign country or of part of a foreign country, or
    • an employee of a public international organisation, or
    • an individual who performs work for a public international organisation under a contract, or
    • an individual who holds or performs the duties of an office or position in a public international organisation, or
    • an individual who is otherwise in the service of a public international organisation, or
    • a member or officer of the legislature of a foreign country or of part of a foreign country, or
    • an individual who  
      • is an authorised intermediary of a foreign public official covered by any of the above paragraphs, or
      • holds himself or herself out to be the authorised intermediary of a foreign public official covered by any of the above paragraphs.

    A foreign public official can only be a natural person. However, the benefit may be provided to another natural person, another entity or a government body with the intention of influencing that foreign public official. If tax officers hold any doubts on interpretation in relation to the application of these guidelines, advice should be sought from the Tax Counsel Network.

    Record keeping requirements

    Tax officers should expect that taxpayers would have appropriate records. Taxpayers require these records for corporate governance purposes including tax risk management. External and internal auditors also have expectations that entities will keep appropriate records.

    For tax purposes, section 262A of the Income Tax Assessment Act 1936 (ITAA 1936) requires that records are kept for all transactions and that those records are adequate to explain the transactions.

    For facilitation payments, the Criminal Code in Division 70 also sets out particular record making and retention obligations in certain circumstances for records to set out:

    • the value of the benefit concerned, and
    • the date on which the conduct occurred, and
    • the identity of the foreign public official in relation to whom the conduct occurred, and
    • if that foreign public official is not the other person mentioned in paragraph 70.2(10(a) – the identity of that other person, and
    • particulars of the routine government action that was sought to be expedited or secured by the conduct, and
    • the person’s signature or some other means of verifying the person’s identity.

    Failure to maintain records in that form may have important consequences if a person is prosecuted for an offence of bribing a foreign public official under the Criminal Code. The person will not be able to rely on a defence that the payments were legitimately made, even if the defence would otherwise be available, if the person has not kept the required records. However, a failure to maintain records in the form required under the Criminal Code will not necessarily mean the person cannot claim a tax deduction. For the purpose of taxation law, the question is whether the person has kept records in a way that complies with section 262A.


    Section 26–53 – bribes to public officials

    Section 26–53 of the ITAA 1997 specifically denies deductibility to a taxpayer for a loss or outgoing that is determined to be a bribe to a public official. The full text of section 26–53 ITAA 1997 is as follows:

    Bribes to public officials

    26-53 (1) You cannot deduct under this Act a loss or outgoing you incur that is a bribe to a public official.

    26-53 (2) An amount is a bribe to a public official to the extent that:

    • you incur the amount in, or in connection with  
      • providing a benefit to another person, or
      • causing a benefit to be provided to another person, or
      • offering to provide, or promising to provide, a benefit to another person, or
      • causing an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person, and  
    • the benefit is not legitimately due to the other person (see subsection (3)), and
    • you incur the amount with the intention of influencing a public official (who may or may not be the other person) in the exercise of the official’s duties as a public official in order to  
      •  obtain or retain business, or  
      •  obtain or retain an advantage in the conduct of business that is not legitimately due to you, or another person, as the recipient, or intended recipient, of the advantage in the conduct of business (see subsection (4)).

    The benefit may be any advantage and is not limited to property.

    Benefit not legitimately due

    26-53(3) In working out if a benefit is not legitimately due to another person in a particular situation, disregard the following:

    • the fact that the benefit may be customary, or perceived to be customary, in the situation
    • the value of the benefit
    • any official tolerance of the benefit.

    Advantage in the conduct of business that is not legitimately due

    26-53(4)In working out if an advantage in the conduct of business is not legitimately due in a particular situation, disregard the following:

    • the fact that the advantage may be customary, or perceived to be customary, in the situation
    •   the value of the advantage
    • any official tolerance of the advantage.

    Duties of public official

    26-53(5) The duties of a public official are any authorities, duties, functions or powers that:

    • are conferred on the official, or  
    • the official holds himself or herself out as having.


    Division 995 of the ITAA 1997 defines public official as follows:

    Means an employee or official of an Australian Government Agency or of a local governing body.

    Division 995 of the ITAA 1997 defines Australian Government Agency as follows:


    • the Commonwealth, a State or a Territory, or  
    • an authority of the Commonwealth or of a State or a Territory.


    Bribery is also a criminal offence

    Division 70 of the Criminal Code includes provisions making the bribery of foreign public officials a criminal offence.

    Divisions 141 and 142 of the Criminal Code include provisions making the bribery of Commonwealth public officials a criminal offence. These provisions can be found at the following links:

    Whilst this should not influence decisions make by tax officers in the furtherance of compliance action, it should be borne in mind that the actions and observations of the tax officer may later be used as evidence in criminal proceedings.

    Practical examples

    Practical examples of how to identify bribes that may be concealed in business transactions

    Since 1986–87, Australia has operated under a system of self assessment under which the ATO accepts returns on face value. In addition, section 8-1 of the ITAA 1997 is a general deduction provision allowing taxpayers to deduct from their assessable income any loss or outgoing to the extent that it is incurred in gaining or producing assessable income, or it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. Our system of self assessment and the broad nature of section 8–1 ITAA 1997 can be abused by unscrupulous taxpayers to conceal bribes in a large variety of business transactions making the identification of bribe payments difficult.

    In order to conceal bribes, taxpayers will generally use the same techniques they use to conceal income. Tax officers will therefore have to look for evidence of bribery in the same way as they look for evidence of evasion. Taxpayers who knowingly understate their tax liability often leave evidence in the form of identifying indicators. It is also acknowledged that obtaining relevant information from overseas sources may sometimes prove problematic, especially where there is no double tax agreement in place to facilitate the exchange of information.

    Indicators of evasion can consist of one or more acts of intentional wrongdoing on the part of the taxpayer with the specific purpose of evading tax. Indicators of evasion may be divided into two categories: affirmative indications and affirmative acts. No evasion can be found in any case unless affirmative acts are present.

    Affirmative indications serve as a sign or symptom, or signify that actions may have been done for the purpose of deceit, concealment or to make things seem other than what they are. Indications in and of themselves do not establish that a particular process was done; affirmative acts also need to be present.

    Affirmative acts are those actions that establish that a particular process was deliberately done for the purpose of deceit, subterfuge, camouflage, concealment, some attempt to colour or obscure events, or make things seem other than what they are. Examples include omissions of specific items where similar items are included, concealment of bank accounts, failure to deposit receipts to business accounts, and covering up sources of receipts. The indicators of evasion presented below are also relevant to identifying bribes. These practical examples have been sourced from the Indicators of Fraud or Bribery within the OECD Bribery Awareness Handbook for Tax Examiners.

    Expenses or deductions

    Sourced from the OECD Bribery Awareness Handbook for Tax Examiners

    Indicators of bribery may take the form of overstatement of deductions or claiming fictitious deductions.

    Methods of payment

    Some methods employed to channel currency to Australian or foreign public officials are presented below. These methods are by no means new, nor do they represent more than a small fraction of the methods employed, but are identified to emphasise the need for innovative forensic audit techniques to uncover instances of bribes to public officials:

    • Exchange of funds through a legitimate business  
      • A firm controlled by a public official pays a large sum of money to an unrelated corporation in return for fictitious invoices for alleged consulting fees.
      • That corporation in turn makes cheques payable to one of its corporate officers who then cash the cheques with the aid of a bank officer.
      • The cash is returned to the first corporation’s officers who include the public official.
    • Transfer of funds through a spurious business  
      • A bank account is opened in a fictitious name as a conduit for converting cheques to cash.
      • Invoices printed in the fictitious business name are prepared as evidence of purchases.
      • Cheques issued to the fictitious business are deposited and then currency withdrawn.
    • Payment of campaign expense – one example of making indirect political contributions is where the campaign committee or candidate provides an unpaid bill for some campaign expense, such as for the hiring of venues or for the printing of handbills, posters, etc.
    • Indirect payments to public officials  
      • One method of indirect payments to public officials is by way of making payments to a law firm.
      • In this instance, the lawyer acts merely as a conduit to which cheques are issued for ostensible legal services rendered.
      • The payments are deposited to the lawyer’s trust accounts and disbursements made from those accounts to the public official.
      • This method is also used through public relations, advertising, or accounting firms.
    • Another indirect bribe payment method is via a request of donation for a non-profit entity that is not founded for the purpose of the carrying on of a business activity by an official who is the member of top management of this non-profit entity.
    • Invoicing the client for an inflated amount as compared to the actual market price – the difference between the amount received and the normal price is then paid to an intermediary without the profit of the business being affected (difficulties lie in the identification of the intermediary who is rarely identified as such in the books of the company and in finding details of the actual market price).
    • An expense borne by a company and invoiced as an expense for the custody of goods, transport of the company’s goods or installation in the country where the market is realised.
    • The intervention of consultants for the installation or development of local infrastructures for an enterprise where the related payments are made to accounts located in tax havens.
    • Royalty receipts may be recorded as a liability on the books of a company instead of income  
      • The payment of the alleged liability is made before the end of the company's tax year.
      • The payment is made to a management company located in a tax haven that allegedly earned the royalty income.
      • Not recording the royalty as income or the payment to the management company as an expense on the company's books, nor having a liability at year-end, can make detection of a payment to a public official more difficult.
    • Traditional audit techniques can be used to discover bribe payments  
      • A careful scrutiny of the various accounts is required to ascertain the validity of the individual expenses and consider what specific items might lend themselves to concealment.
      • Are there really services being performed for certain payments; and, if so, are the services commensurate with the payments being made for them?
      • What is important to remember is that disbursements are not always what they seem to be.
      • An effective audit calls for more analysis to determine if the disbursement is a valid one and not just a mere conduit or means through which cash can be filtered through with the ultimate payee being a public official.

    Professional services

    All source documents behind amounts charged to professional service providers should be examined carefully for adequacy of description and explanations of services performed, as well as any unusual increases. One practice found to exist is that many firms exaggerate the amount of fees charged relative to projects and specific cases over and above what the normal billing would have been for the actual work performed. This excess billing would then be used to recover prearranged political payments or payments to public officials by the firms on behalf of the taxpayer. An indicator may also be the existence of large payments to consultant companies where the invoices are not very specific.

    Travel and entertainment expenses

    Illegal payments may be deducted under the guise of travel and entertainment. Employee expense accounts and correspondence can be used to develop an itinerary of selected employees. Correspondence, as well as the Board of Directors’ expense vouchers can be carefully examined to determine political events, functions and travel to make political contributions. All the above sources can be used to identify a date, time and place that the taxpayer was involved in business transactions involving bribes. All travel expenses connected with each particular event can be selected from source documents supplied by the taxpayer.

    The following categories are usually the prime sources used to disguise illegal payments:

    • executive travel expenses
    • charter air travel – whether by the taxpayer’s employees or paid directly for travel by a political candidate
    • taxpayer’s private aircraft pilots expenses
    • expenses relating to various selected employees, including direct credit card charges.

    Fictitious employees

    Sourced from the OECD Bribery Awareness Handbook for Tax Examiners

    Payrolls may be inflated for numerous reasons including bribery. The purpose is usually the same: to get funds out of a business in the form of a deduction without the recipient paying income tax on the income. This method is commonly used where the paying enterprise is in the type of business which does not deal in cash and where money can only be taken out by cheque. This method could be used to enable the taxpayer to obtain funds needed for bribes.

    Another way to inflate the payroll is to have political party workers on the payroll even though the employee performs no services for the income. The same technique may be used for public officials.

    To detect indications of fictitious employees, tax officers should focus on payroll records. The following circumstances require special attention:

    • if there is a suspicion or knowledge that fictitious employees are being used, then the negotiation of the cheque should be pursued – if cheques are cashed in the same bank or through other parties, the payee may be known at the bank or by the re-endorsers
    • if the company provides or assists in insurance coverage pension plans, etc, employee termination records should be tested to determine whether the employee was also withdrawn from the payroll
    • a company may continue issuing cheques to an employee who has left – tax officers should randomly select employees and compare endorsements at various times during the year
    • key employees or officers may be loaned to political parties to perform various services while being paid their salary by their employer  
      • tax officers should attempt to determine where the employees' services were performed during the payroll periods in question
      • an examination of expense reimbursement reports would be of assistance in determining the geographical location of the employee at a particular time
      • this information may serve as a basis for a follow-up interview of the employee.

    Some foreign public officials have few legitimate sources of income, therefore some of them may be tempted to subsidise their income through illegal activities. These individuals will find a business willing to put them on the payroll and issue them regular payroll cheques, even though they perform no services.

    The tax officer should extend the examination to the suspected public official and trace their payroll cheques to determine if any of the money was returned to the corporation. When the entity being examined is suspected of being used as a salary haven by a public official, the tax officer should look for certain indications to support the suspicion, such as:

    • determining if cheques are cashed by the employer
    • establishing whether the employee has the qualifications to perform the function for which they receive the salary
    • ascertaining if records indicate the employee is still on the payroll at the time of audit – the tax officer should attempt to establish whether they are actually present on the premises
    • ascertaining if the employee holds a position as an outside salesperson – the tax officer should determine who the customers are and establish whether the employee actually contacts these customers.

    The tax officer may need to request information from overseas when the fictitious employee is a foreign public official, although this may prove to be problematic (see ‘Information available from tax treaty partners’ in OECD Bribery Awareness Handbook for Tax ExaminersExternal Link).

    Books and records

    Sourced from the OECD Bribery Awareness Handbook for Tax Examiners

    In order to detect bribes, the tax officer should look for traditional methods of manipulating books and records, such as:

    • keeping two sets of books or no books
    • false entries or alterations made on the books and records, back-dated or post-dated documents, false invoices, false applications, statements, other false documents or applications
    • failure to keep adequate records, concealment of records, or refusal to make certain records available.

    Conduct of taxpayer

    Sourced from the OECD Bribery Awareness Handbook for Tax Examiners

    An assessment of the behaviour of the taxpayer may also be useful to determine the existence of bribes. Examples include:

    • attempts to hinder the examination; for example, failure to answer pertinent questions repeated cancellations of appointments, or refusal to provide records
    • statements by employees concerning irregular business practices by the taxpayer
    • destruction of books and records, especially if it occurred soon after the examination commenced
    • payment of improper expenses by or for officials or trustees
    • back-dating of applications and related documents
    • attempts to bribe a tax officer.

    Methods of concealment

    Sourced from the OECD Bribery Awareness Handbook for Tax Examiners

    A number of methods of concealment may be used to conceal bribes, such as:

    • transactions not in the usual course of business
    • transactions surrounded by secrecy
    • false entries in books of transferor or transferee, use of secret bank accounts for income
    • deposits into bank accounts under nominee names
    • conduct of business transactions in false names.

    Australian transaction reports and analysis centre (AUSTRAC) data

    AUSTRAC maintains a database of:

    • suspect transactions: any transaction that arouses suspicions with the cash dealer due to either the monies or entities involved in the transaction
    • significant cash transactions: any transaction involving a cash component of A$10,000 or more, or the equivalent in foreign currency must be reported by a cash dealer and solicitor
    • international funds transfer instructions: any instruction transmitted electronically for the transfer of funds either into or out of Australia
    • international currency transfers: a report of physical currency (cash) of A$10,000 or more, or the foreign equivalent, leaving or entering Australia by carriage, mailing or shipping.

    AUSTRAC data is a valuable source of information for international funds transfers into and out of Australia and domestic cash transactions over $10,000.

    However, in relation to bribery of Australian or foreign public officials, AUSTRAC data probably cannot be used on its own to determine whether or not bribery is involved. When combined with other information it can be very useful in building a picture of money flows to and from people of interest.

    Foreign country profiles

    International organisations have compiled a profile of countries where bribes and facilitation fees are more likely to be paid to establish or maintain ongoing trade.

    In the risk review or audit of taxpayers, especially multinational companies, where auditors become aware of significant trade with entities in jurisdictions where bribes or facilitation fees seem to be a way of doing business, they need to make additional enquiries to understand if bribe or non-deductible facilitation fee payments have been claimed as deductions in Australia.

    Auditors of multinational companies will need to identify and understand the safeguards and internal controls which boards of directors and senior management have put in place to minimise the risk that bribes are paid to Australian and foreign public officials.

    At times, large corporate taxpayers and senior tax officers will meet to gain a detailed understanding of these safeguards as part of a broader discussion about taxpayer approaches to tax risk management.

    Some corporates have been very proactive to ensure that bribes are not paid because of the risk to their own reputation and brand image.

    At the start of a risk review or an audit, auditors should ask for, review and understand:

    • a company’s code of conduct or similar document and the extent to which there is an explicit policy of not paying bribes however described in the taxpayer’s accounts
    • how that code of conduct has been implemented and enforced at a practical level including how the board of directors, audit committee and internal audit gain assurances that there is compliance with a code which prohibits the payment of bribes
    • other internal controls and safeguards implemented to minimise the risk that bribes are paid to public officials.

    An understanding of these implemented internal controls and safeguards will influence the extent to which auditors may need to make further enquiries and verify if transactions, invoices, agreements and payments are correctly described and characterised for accounting and tax purposes.

    If the ATO has received specific intelligence regarding the payment of a bribe to public officials this will also influence the extent to which we make enquiries and review specific company records.

    Other audit processes may be necessary to conclude these sorts of enquiries.

    These additional enquiries and audit processes may include the following:

    • Has the company engaged a forensic accountant or other analyst or investigator (internal or otherwise) to establish if bribes or non-deductible facilitation fees have been paid – auditors will need to establish if this has occurred, when the checks were undertaken and gain a copy of the report filed on completion of the audit or investigation to check if any bribes or non-deductible facilitation fees paid have been claimed as deductions.
    • If the taxpayer has no code of conduct or similar policy in place or no checks have been made to test if bribes or non-deductible facilitation fees have been paid and significant trade has commenced or is underway with an entity in a jurisdiction where bribes and facilitation fees are more likely than not, auditors need to review a sample of significant contracts and invoices with entities in those jurisdictions.  
      • In particular, auditors should check significant payments made around the time of establishing contracts and all significant components of contract and invoice prices agreed to between the parties.
      • Auditors need to enquire as to why the significant price and invoice costs are appropriate and seek to gain information to confirm that the prices agreed would be appropriate between arm's length parties and contain no significant elements which could be bribes or non-deductible facilitation fees.
    • Where taxpayers cannot satisfy auditors that the fees, prices or on-costs are appropriate and would be paid between arm's length parties, auditors need to consider as next steps, the disallowance of the relevant deductions according to the tax laws including section 26-52 of the ITAA 1997.

    Record keeping and audit techniques

    The purpose of this section is to provide guidelines that may be used in conducting an effective audit where bribery is suspected.

    Ensure due diligence in record keeping, corroboration and security

    Due diligence in record keeping, corroboration and the security of evidentiary material uncovered during compliance activities is important to ensure the integrity of evidence both for the audit and any subsequent criminal proceedings.

    Following are suggestions to enhance the integrity of any evidence collected for the purpose of the audit and also to increase the likelihood that the evidence will also be admitted during possible subsequent criminal proceedings:

    • keep contemporaneous notes of all communications and activities associated with the audit
    • where possible have another tax officer corroborate communications and/or actions and evidence this corroboration by endorsing a single set of written or electronic notes or by preparing individual sets of written or electronic notes
    • keep all original notes notwithstanding that they may have been transferred into an electronic format
    • when recording conversations, particularly conversations with the taxpayer suspected to have entered into a bribery transaction, record the conversation in the ‘I said, he said’ format
    • keep all documentary and other evidence associated with the audit secure, preferably only accessible by one person in order to maintain the continuity and integrity of the evidence.

    Examination plan and compliance checks

    During the planning phase and conduct of audits of tax returns, the team leader of the tax officer and the tax officers themselves should be alert to situations that lend themselves to the creation of illegal or improper payments, such as bribes.

    When deemed appropriate and necessary, the audit plans should include consideration of the following compliance checks:

    • examination of internal audit reports, minutes and related working papers to determine if any reference is made to the creation of any secret or hidden corporate fund
    • review copies of taxpayer's reports submitted to the Australian Securities & Investment Commission, financial institutions, insurers and other regulatory bodies
    • give appropriate consideration to any foreign entities, operations, contractual or pricing arrangements, fund transfers and use of tax haven locations.

    Methods for accumulating evidence particularly relevant to identifying bribes

    These methods include:

    • analytical tests – such as analysis of balance sheet items to identify large, unusual, or questionable accounts (analytical tests using comparisons and relationships to isolate accounts and transactions that should be further examined or determine whether further inquiry is needed)
    • documentation - such as examining the taxpayer's books and records to determine the content, accuracy, and to substantiate items claimed on the tax return
    • inquiry – such as interviewing the taxpayer or third parties (information from independent third parties can confirm or verify the accuracy of information presented by the taxpayer)
    • testing – such as tracing transactions to determine if they are correctly recorded and summarised in the taxpayer's books and records.

    Information gathering – access, notices and interviewing

    Access and notices

    There are access provisions in many of the Acts administered by the Commissioner of Taxation. Most of these provisions give the Commissioner, or any tax officer he authorises, the right to enter and remain on premises and to have full and free access to documents for any purpose of the applicable Act. Access provisions in most Acts also confer on authorised officers the right of reasonable assistance and facilities. The Access Manual refers to these rights as access powers. Provisions granting access powers are to be distinguished from other provisions governing information and evidence gathering that require the service of a notice. The notice provisions are dealt with separately in the access manual.

    Access manual

    The access manual should be consulted in all cases regarding the application of ATO access powers or notice provisions (including offshore information notices) at the following link – Access and information gathering manual.


    The access manual also provides guidance to tax officers when undertaking formal interviews. The following information provides further guidance in respect to interviewing techniques.

    • Who to interview – interviews to detect the payment of bribes should always be held with the person or people having the most knowledge concerning the total financial picture and history of the person or entity being examined, such as the chief executive officer, chief financial officer, officer in charge of international operations, officer in charge of governmental activities, directors who are not corporate officers but who serve on audit committees or have similar responsibilities, and others, as appropriate.
    • Interview techniques – special attention should be given to interview techniques  
      • It is important that the tax officers always maintain control of the interview and even more so when he has suspicion of bribes.
      • Tax officers should establish the pace and direction of the interview.
      • It is also important to continually assess whether the taxpayer is leading to pertinent information or providing little useful information.
    • Question construction – when interviewing a taxpayer four types of questions can be asked: open-ended, closed, probing and leading questions (it will be up to the tax officer to decide which type of questions are the most appropriate in order to detect bribes).

    Open-ended questions

    Questions are framed to require a narrative answer. They are designed to obtain a history, a sequence of events or a description. Ask open-ended questions about the taxpayer's business. The advantage of this type of question is that it provides a general overview of some aspect of the taxpayer's history. The disadvantage is that this type of question can lead to rambling.

    Closed questions

    Questions are more appropriate for identifying definitive information such as dates, names, and amounts. These questions are specific and direct. Ask closed questions for background information such as payments to public officials. Closed questions are useful when the taxpayer has difficulty giving a precise answer. They are also useful to clarify a response to an open-ended question. The disadvantage to closed questions is that the response is limited to exactly what is asked and can make the taxpayer uncomfortable.

    Probing questions

    Probing questions combine the elements of open and closed-ended questions. They are used to pursue an issue more deeply. For example, when questioning a taxpayer's consulting expense, ask, ‘What is the business purpose of this expense?’ The advantage of this type of question is that the taxpayer's response is directed but not restricted.

    Leading questions

    Leading questions suggest that the interviewer has already drawn a conclusion or indicate what the interviewer wants to hear. The use of leading questions should be limited. Use them when looking for confirmation, since the answer is stated in the form of a question. For example: ‘So you did not keep invoices for you're consulting expenses?’

    Suggested interview question structure

    The following interview questions provide guidance in respect of the structure of questions that can be put to a taxpayer at interview who are suspected of having deducted a loss or outgoing that is a bribe.

    During the period from    to    , did the corporation, any corporate officer or employee, or any other person acting on behalf of the corporation, make, directly or indirectly, any bribe, kickback, or other payment of a similar or comparable nature, whether lawful or not, to any person or entity, private or public, domestic or foreign, regardless of form, whether in money, property, or services, to obtain favourable treatment in securing business or to obtain special concessions, or to pay for favourable treatment for business secured or for special concessions already obtained?

    During the period from      to     , were corporate funds, or corporate property of any kind, donated, loaned, or made available, directly or indirectly, for the benefit of, or for the purpose of opposing, any government or subdivision thereof, political party, political candidate, or political committee, whether domestic or foreign?

    During the period from      to     , was any corporate officer, employee, contractor, or agent compensated, directly or indirectly, by the corporation, for time spent or expenses incurred in performing services, for the benefit of, or for the purpose of opposing, any government or subdivision thereof, political party, political candidate, or political committee, whether domestic or foreign?

    During the period from      to     , did the corporation make any loan, donation, or other disbursement, directly or indirectly, to any corporate officer or employee, or any other person, for contributions made or to be made, directly or indirectly, for the benefit of, or for the purpose of opposing, any government or subdivision thereof, political party, political candidate, or political committee, whether domestic or foreign?

    During the period from      to      , did the corporation, or any other person or entity acting on its behalf, maintain a bank account, or any other account of any kind, whether domestic or foreign, which account was not reflected in the corporate books and records, or which account was not listed, titled, or identified in the name of the corporation?

    Evaluating the taxpayer's internal controls

    Internal controls are defined as the taxpayer's policies and procedures to identify, measure and safeguard business operations and avoid material misstatements of financial information. An evaluation of a taxpayer's internal controls is necessary to determine the reliability of the books and records which is particularly relevant when there is suspicion of bribery. It is also essential to evaluate internal controls to determine the appropriate audit techniques to be used by the tax officer during the audit.

    Key steps for evaluating internal controls

    The evaluation of internal controls can be described as an analysis completed by the tax officer to understand and document the entire business operation. The key steps of the evaluation process are to understand the control environment, the accounting system and the control procedures.

    Control environment

    The first area tax officers must understand is the control environment of the business. The control environment is made up of many factors that affect the policies and procedures of the business. Factors such as management philosophy, management operating style, organisational structure, personnel policies and external influences affecting the business all provide an indication of potential bribery. To make an assessment of the control environment, tax officers must understand, in detail, how the business operates.

    Accounting system

    The second key area of internal control that tax officers must understand is the accounting system. Gaining knowledge of the accounting system provides information about many of the taxpayer's transactions.

    Tax officers must acquire knowledge of how the business operates on a daily basis with respect to customers, suppliers, management, sales, work performed, pricing, location, employees, assets used, production and record keeping.

    Control procedures

    Control procedures are the policies and procedures established by management to achieve the objectives of the business. The control procedures are the methods established to assure that the business operates as intended. Separation of duties is the primary control procedure that should concern tax officers. If properly executed, separation of duties will reduce the opportunity for any person to perpetrate and conceal errors or irregularities made; for instance, in order to pay bribes in the normal course of their duties.

    Slush funds

    This section provides auditing techniques and compliance checks to help identify and examine corporate ‘slush funds’ or any other schemes which may be used to circumvent tax laws or pay bribes to public officials.


    Corporate slush funds are accounts or groups of accounts generally created through intricate schemes outside of normal corporate internal controls for the purpose of making political contributions, bribes, kickbacks, personal expenditures by corporate officials and other such activities. Top level corporate officers are generally involved and the schemes are carried out by various transactions through the use of both domestic and foreign subsidiaries.

    Examples of slush funds

    The usual practice in schemes operating in the foreign arena is for the domestic parent corporation to use a foreign subsidiary, a foreign consultant, or a foreign bank account to launder funds so that cash could be generated and repatriated back to the domestic parent to provide a slush fund for payments to Australian public officials. The funds would not be repatriated of course if the payment were made to a foreign public official.

    Another example is a slush fund generated by rebates from a foreign legal consultant. The foreign legal consultant, who also performed legitimate consulting services for the domestic corporation, over bills the company and then transfers the money back to the corporation in cash.

    Officers and/or key employees may be paid additional compensation based on their promise that they will contribute either a percent of the bonus or the net amount (net of income taxes) as a political payment or bribe payment.

    Another example is corporate over-capitalisation. Real or personal property may be acquired by the business entity for more than fair market value. The excess is rebated or ‘kicked back’ and used by the promoter of the scheme to make the contribution to the political organisation or the payment to the public official.

    Contributions may be paid to law firms which act as conduits by depositing the funds in trustee accounts from which they are disbursed to the political campaign committee designated by officers of the contributing corporation or to a public official.

    Referral of instances of suspected bribery

    The ATO is primarily concerned with the protection of the revenue and maintaining community confidence in its administration by identifying and dealing with deductions that are bribe payments. However, the ATO also has an important part to play in the whole-of-government effort to combat corruption and bribery by referring information on suspected or actual bribe transactions to the Australian Federal Police for potential criminal investigation and /or prosecution.

    If a tax officer encounters a transaction they suspect may be a bribe to an Australian or foreign public official, it is imperative that the information be referred, at the earliest opportunity, to the Private Groups and High Wealth Individuals business line.

    Within the requirements of the legislation, an authorised officer from within the Private Groups and High Wealth Individuals business line will seek to disseminate the information to the Australian Federal Police pursuant to section 355-70(1) (table 1 item 1) of the Taxation Administration Act 1953.

    Information available

    Other government agencies

    During the planning and examination of corporate entities, tax officers should consider what information, if any, could be requested from other Government agencies.

    Tax treaty partners

    In some cases involving foreign bribery, tax officers may be able to obtain information from Australia’s tax treaty partners. Tax treaties are signed by sovereign states, are binding at international law and set out each party’s rights and obligations. These treaties are titled either Agreements or Conventions, and they direct that the parties shall perform certain actions or give effect to certain undertakings. Australia’s tax treaties are given the force of law by the International Tax Agreements Act 1953. The following information is provided to assist tax officers in obtaining relevant information from tax treaty partners.

    Treaty partners

    Australia has entered into 42 tax treaties with other countries to prevent double taxation and allow cooperation between Australia and overseas tax authorities in enforcing their respective tax laws. In addition, there is a special treaty with East Timor (Timor Sea Treaty) which contains exchange of information provisions. See the full list of countries that have a tax treaty with Australia for more information.

    Exchange of information unit

    The exchange of information (EOI) unit of international strategy and operations (ISO) administers the Australian competent authority function, via which the ATO can exchange taxpayer specific information with other tax agencies. The EOI unit receives requests from business lines for information from our treaty partners and also receives requests from our treaty partners which are sent to business lines for investigation and response. The EOI unit issues competent authority letters based on the information that tax officers request or provide.

    Competent authority

    Under Australia's tax agreements, the competent authority is the Commissioner of Taxation or an authorised representative. The Commissioner has delegated this function to the Second Assistant Commissioner of ISO and the Assistant Commissioner of the Transfer Pricing Practice within ISO. For practical purposes several other senior officers within ISO have also been authorised to sign on behalf of the Competent Authority. All our major treaty partners have a similar central administration for administering and authorising exchanges of information.

    In special circumstances, which could include complex tax investigations in which the bribery of foreign public officials is a feature, our Competent Authority may authorise officers to directly liaise with similarly authorised representatives of the foreign tax administration.

    Contact for exchange of information

    If tax officers need to request information from or provide information to an overseas tax authority, or need to liaise directly on a complex case, they should contact the EOI unit directly by email to AustralianCompetentAuthority@ato.gov.au


    These guidelines are only intended as a guide to tax officers undertaking compliance activities with a view to identifying and dealing with payments suspected of being bribes to Australian or foreign public officials.

    These guidelines provide guidance in determining whether a loss or outgoing is an allowable deduction in cases where bribery is suspected. The guidelines also identify that bribery is a criminal offence and asks that, in circumstances where bribery is suspected, there be increased due diligence and that at the earliest opportunity a referral to Private Groups and High Wealth Individuals is made. The information will be directed to the Australian Federal Police who will determine whether or not to commence a criminal investigation.

    These guidelines are not a definitive audit resource but rather designed to:

    • highlight the non-deductibility of bribes to Australian and foreign public officials
    • provide referral guidelines
    • identify some indicators of bribery
    • address offshore information-gathering procedures
    • highlight some record keeping and audit techniques that may be useful when undertaking an audit to determine if there are bribe payments.

    We acknowledge the contribution to these guidelines by the OECD Centre for Tax, Policy and Administration from their ‘OECD Bribery Awareness Handbook for Tax Examiners’ (CTPA/CFA(2005)36).

    More information

    For more information, you can:

    • visit Tax evasion
    • phone us on 1800 060 062, 8.00am to 6.00pm, Monday to Friday, excluding National public holidays
    • fax 1800 804 544
    • write to us at
      Tax Evasion
      Locked bag 6050
      DANDENONG  VIC  3175
      Last modified: 28 Mar 2017QC 19159