Bribery and Corruption Awareness Handbook for Tax Examiners and Tax Auditors

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Author(s):
OECD
07 Nov 2013
Pages:
66
ISBN:
9789264205376 (PDF) ;9789264205222(print)
http://dx.doi.org/10.1787/9789264205376-en

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This Handbook is designed to raise the awareness of tax examiners and auditors of issues concerning bribery and other forms of corruption. It provides guidance on how to recognise indicators of possible bribery or corruption in the course of regular tax examinations and audits.

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  • Preface

    In today’s interconnected world, corruption’s damaging effects spread throughout the global economy and society far beyond where the corrupt act is committed. In order to effectively fight corruption – both at home and internationally – transparency, accountability and integrity in the public and private sectors are necessary. The OECD has been a global leader in the fight against corruption for 15 years since the adoption of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Our multidisciplinary approach addresses corruption in business, taxation, development aid, and governance in member countries and beyond as part of its mission to build a stronger, cleaner and fairer world economy.

  • Introduction

    The first OECD Bribery Awareness Handbook for Tax Examiners was launched in 2001 and updated in 2009 to support the implementation by countries of the 1996 Recommendation on the Tax Deductibility of Bribes to Foreign Public Officials in International Business Transactions and the 2009 Recommendation on Tax Measures for Further Combating Bribery of Foreign Public Officials in International Business Transactions. The 2009 Recommendation requires that OECD member countries and other parties to the OECD Anti-Bribery Convention explicitly disallow the tax deductibility of bribes to foreign public officials in an effective manner, and the Handbook provided practical guidance to help tax examiners identify suspicious payments likely to be foreign bribes so that the denial of deductibility could be enforced, and bribe payments detected and reported to the appropriate domestic law enforcement authorities. In 2010, the OECD issued a Recommendation to Facilitate Co-operation between Tax and Other Law Enforcement Authorities to Combat Serious Crimes. This Recommendation required countries to implement effective legal and administrative frameworks and provide guidance to facilitate reporting by tax authorities of suspicions of all serious crimes arising out of performance of their duties. This covers all forms of corruption, including that arising in a domestic or international context, and by private and public officials. To support the implementation of the 2010 Recommendation, the latest version of the Handbook considers various types of corruption that a tax examiner or auditor are most likely to encounter in their work, including different forms of bribery, and not just the bribery of foreign public officials. This wider focus also reflects the fact that, in the course of their activities, tax examiners and auditors may find indicators of possible corruption but may not be in a position to determine whether or not it concerns foreign public officials. This version of the Handbook was developed by a team comprising specialists from Austria, Canada, Germany, the Netherlands, Norway and the United States and includes input from the OECD Task Force on Tax Crimes and Other Crimes and the OECD Working Group on Bribery.

  • What are bribery and corruption?

    The same justifications and excuses for bribery and corruption, like other white collar crimes, are heard time and time again. "Everybody does it", "it’s a cost of doing business", "it doesn’t really matter", "nobody gets hurt". This is not true. The corruption of public or private officials and decision makers, and the payment of bribes, raise serious moral and political concerns. These are not victimless crimes, and in fact exact a heavy economic and social cost. Bribery and corruption create an unlevel playing field for honest businesses, and cut deep into the social fabric of developed and developing countries alike. They can translate into inferior and dangerous products allowed onto the market place, substandard building materials used in infrastructure projects that can endanger people’s health and welfare, and the diversion of vital money required for education, health and welfare services. In the end, we all pay the bill.

  • The role of the tax administration in combating bribery and corruption

    Tax administrations have an important role to play in combating bribery and corruption. In the course of their activities tax examiners and auditors are in a very strong position to identify indicators of possible bribery or corruption, and the tax administration has a responsibility to exercise its duties and powers to assist other government agencies in fighting these crimes. The tax administration assists the fight against bribery and corruption in two main ways.

  • The role of tax examiners and tax auditors

    Tax examiners and auditors around the world are highly trained and skilled specialists, who in the course of their normal activities routinely examine the financial affairs, transactions and records of millions of individuals, companies and other taxpayers. However, they may be unaware of what the typical indicators of possible bribery or corruption are, as well as their own role in referring their suspicions to the appropriate law enforcement authority or public prosecutor where they have identified possible bribery or corruption. Furthermore, tax examiners and auditors should be reminded that bribes and other payments linked to corruption are not tax deductible and the proceeds of corruption are often taxable income or gains under domestic law. While the aim of this Handbook is to raise awareness among tax examiners and auditors of issues surrounding bribery and corruption, it is not meant to replace domestic laws, policies and procedures. Tax examiners and auditors must, at all times, carry out their duties in accordance with the laws, policies and procedures which apply in their country. Therefore, in ensuring that their country’s domestic tax law is properly applied, tax examiners and auditors should be aware of their role in detecting bribery and corruption and thus alert to indicators of possible bribery or corruption.

  • Indicators of possible bribery or corruption

    Tax examiners and auditors need to be aware of the indicators of possible bribery or corruption to ensure they can be taken into account when planning an examination, and can be recognised when they are present. This chapter categorises the main indicators of possible bribery or corruption that may arise during the compliance risk analysis process for selecting the cases, during the examination of a tax return, the planning of a tax audit and during the audit itself.

  • Indicators concerning the taxpayer's external and internal risk environment

    Tax examiners and auditors should be aware that detecting possible corruption begins as early as at the assignment of the file and before field work begins. Both tax examiners and auditors should, as with any other file, familiarise themselves with the particulars of the taxpayer’s business and its industry.

  • Indicators concerning the taxpayer's transactions

    In this chapter, the indicators surrounding the transactions a taxpayer is party to are discussed. In particular, these concern the parties to transactions, including intermediaries and consultants, and the terms of transactions. There are many sound business reasons why a company operating in a foreign jurisdiction should make use of external consultants, to gain access to knowledge of local law and business practices and particular features of the local industry. Consultants can also be used to facilitate business contacts for new entrants to a market. However, cases of bribery often involve the use of consultants to negotiate arrangements and also to facilitate execution of the illicit transaction. For example, the payment of bribes is often characterised as a fee to the consultant, part of which is then used to pay the bribed official. Therefore, when found together with other indicators, close relationships between a taxpayer and external consultants may be a flag that further enquiries into possible corruption should be considered, bearing in mind that the tax examiner and auditor’s predominant purpose is the determination of civil tax liability.

  • Indicators concerning payments and money flows

    Much bribery and corruption consists of the illicit transfer of assets, which the parties to a transaction will try to disguise as legitimate business payments. However, because many taxpayers will still seek to claim a tax deduction with respect to bribes and other payments made for the purposes of corruption, a paper trail is likely to be left behind which can be uncovered by tax examiners and auditors.

  • Indicators concerning the outcome of the taxpayer's transactions

    As discussed in previous chapters, tax examiners and auditors should be aware of anything in a taxpayer’s risk environment, their transactions and their payments and money flows that indicate an increased risk of bribery or corruption. Tax examiners and auditors should also be aware of any indicators that bribery or corruption may have already taken place.

  • Indicators specifically concerning the recipient of the proceeds of possible bribery or corruption

    Much of the focus in the previous chapters has been on the payer of bribes and other payments within corrupt transactions. However, tax examiners and auditors must remain aware of indicators concerning the recipients of bribes and other proceeds of corruption, and the tax consequences of the income or gains they receive. The recipients of possible bribes or other proceeds of corruption are individuals, whether government officials or decision makers in companies, which either seek to hide the payments they receive, or disguise them as another form of income. Wherever tax examiners or auditors uncover indicators of possible tax evasion or money laundering, they should also consider whether these may also suggest that the taxpayer is in receipt of bribes or other proceeds of corruption.

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    • List of useful websites and resources

      When looking for further information on bribery and corruption, tax examiners and auditors should look first to their own agency’s guidance. The resources below may provide useful additional background information, but do not replace domestic legislation or regulation.

    • Information to be included in a referral of suspicions of possible bribery or corruption

      Set out below is a summary of the types of information that should be included in a referral to the appropriate law enforcement authority or public prosecutor of a tax examiner’s or auditor’s suspicions of possible bribery or corruption. To facilitate the referring of suspicions, a country may wish to develop a standard form including space for this and other relevant information.

    • Indicators of possible bribery or corruption

      There are no absolute rules on what events or characteristics of a taxpayer or transaction should lead a tax examiner or auditor to suspect possible bribery or corruption. Every case must depend on its individual facts and circumstances, and be assessed in light of the tax examiner or auditor’s experience. This annex contains a compilation of the indicators of possible bribery or corruption that are listed elsewhere in this Handbook. In some cases, a single indicator may be sufficient for a tax examiner or auditor to feel able to refer their suspicions to the appropriate law enforcement authority or public prosecutor. However, in most cases, the presence of a single indicator should encourage the tax examiner or auditor to also consider other indicators that may be present, to build a more complete picture, before deciding that a referral should be made.

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