• Guidelines for understanding and dealing with the bribery of Australian and foreign public officials

    These guidelines draw on the OECD (2013) Bribery and Corruption Awareness Handbook for Tax Examiners and Tax AuditorsExternal Link. They are designed to provide you with:

    • an 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
    • advice on referring suspected bribery.

    On this page:

    Background

    The Australian Government is 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). We are 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. Amongst other outcomes, it 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. They became effective from the 1999–2000 income year.

    Phase 2 of the OECD review was completed in January 2006. It included a recommendation that the ATO prepare 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
    • 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.

    Australia’s Phase 3 review was completed in December 2012. The Phase 3 report included recommendations for Australia to strengthen its enforcement of the foreign bribery offence. In 2014, the Australian Government announced the creation of the multi-agency Fraud and Anti-Corruption (FAC) Centre within the Australian Federal Police (AFP). The FAC Centre is responsible for identifying and thoroughly evaluating referrals of alleged foreign bribery. The ATO works closely with the AFP as a member of the FAC Centre and the Serious Financial Crimes Taskforce.

    Australia is scheduled to undergo its Phase 4 review in 2017.

    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.

    Definitions

    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 any of:

    • an employee or official of a foreign government body
    • an individual who performs work for a foreign government body under a contract
    • 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
    • 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
    • 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)
    • a member of the executive, judiciary or magistracy of a foreign country or of part of a foreign country
    • an employee of a public international organisation
    • an individual who performs work for a public international organisation under a contract
    • an individual who holds or performs the duties of an office or position in a public international organisation
    • an individual who is otherwise in the service of a public international organisation
    • a member or officer of the legislature of a foreign country or of part of a foreign country
    • an individual who is either 
      • an authorised intermediary of a foreign public official covered by any of the above paragraphs
      • 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

    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
    • the date on which the conduct occurred
    • the identity of the foreign public official in relation to whom the conduct occurred
    • if that foreign public official is not the other person mentioned in paragraph 70.2(10(a) – the identity of that other person
    • particulars of the routine government action that was sought to be expedited or secured by the conduct
    • 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.

    See also:

    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:

    • 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 either
        • providing a benefit to another person
        • causing a benefit to be provided to another person
        • offering to provide, or promising to provide, a benefit to another person
        • causing an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person
         
      • the benefit is not legitimately due to the other person (see subsection (3))
      • 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 either
        •  obtain or retain business
        •  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.

    Definitions

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

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

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

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

    See also:

    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:

    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, we also have an important part to play in the whole-of-government effort to combat corruption and bribery. We refer information on suspected or actual bribe transactions to the AFP for potential criminal investigation and /or prosecution.

    More information

    For more information, you can:

    • visit The fight against tax crime
    • phone us on 1800 060 062, 8.00am to 6.00pm, Monday to Friday, excluding national public holidays
    • send us a fax to 1800 804 544
    • write to us at
      Tax Evasion
      Locked bag 6050
      DANDENONG  VIC  3175
      Last modified: 28 Jun 2017QC 19159