Russia Confirms Bribes No Longer Tax Deductible

Reposted from the OCRA Worldwide Newsletter

The Russian Ministry of Finance has clarified in a September notice that following the adoption by Russia of an international convention to combat the bribery of foreign public officials in international business transactions, expenditure on bribery abroad can no longer be deducted for corporate tax purposes.

The Ministry said that these payments, including gifts given to secure business, can no longer be considered as a deductible expense under Paragraph 1 of Article 252 of the Tax Code, and although illegal these expenses must be included in financial reporting for taxation purposes.

The Ministry of Finance noted that the Federal Law of February 1, 2012 “On the accession of the Russian Federation to the Organization for Economic Cooperation and Development’s (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions” had entered into force on April 17, 2012. The OECD Anti-Bribery Convention – the first and only international anti-corruption instrument focused on the ‘supply side’ of the bribery transaction – establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective.

According to Transparency International, prior to the adoption of the OECD Anti-Bribery Convention, in 1999 paying bribes abroad was a tax deductible expense in at least fourteen OECD countries. China and India remain the two most important exporting economies that have yet to sign the convention. It remains to be seen whether Russia’s membership of the convention will bring about a notable change in Russian business practices abroad; in 2011, research by Transparency International said Russian entities were among the most likely to engage in bribery overseas, noting a link to its substantial oil and gas industries.

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