Are bribes tax deductible?

Sections 26-52 and 26-53 of the Income Tax Assessment Act 1997, introduced in 2000, deny taxpayers a deduction for bribes paid to foreign or domestic public officials. Deductions may be allowable, however, for facilitation payments under subsections 26-52(3)-(5).

The ATO 2006-07 Compliance Program includes a focus on bribes and facilitation payments.

The ATO has published its guidelines for Tax Office auditors dealing with bribery of Australian and foreign public officials.

These guidelines were developed for ATO auditors and are intended to: 

• set out the key aspects of the law in this area
• provide some practical ways to identify and deal with concealment of bribes
• provide advice on record-keeping and audit techniques where bribery is suspected
• give guidance on how to refer cases were bribery is suspected, and
• provide direction on how to obtain information from Australia's treaty partners.

To ensure that only legitimate expenses are claimed as deductions and legitimate input tax credits are claimed, this year the ATO is: 

• reviewing significant, one-off, regular or embedded payments by Australian businesses to entities in jurisdictions where bribes or facilitation payments are said to be ‘part of doing business’
• checking that businesses with particular international trade profiles have appropriate codes of conduct and systems in place to detect bribes and international facilitation payments, and
• reviewing organisations that do not have appropriate systems in place.