Tax, Compliance & Investigations - wts study International survey about tax audits and the detection risk and consequences of corruption
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wts study Tax, Compliance & Investigations International survey about tax audits and the detection risk and consequences of corruption
Table of Contents
Introduction 3 Austria.................................... 9 Italy...................................... 37
Objective and Design of the Study 4 Belarus................................. 11 Ivory Coast........................... 39
Analysis of Survey Results – Brazil.................................... 13 Republic of Korea................. 41
Our Summary 5
China.................................... 15 Mauritius.............................. 42
Individual Results 9
Republic of Cyprus ............... 17 Mexico................................. 44
About WTS 67
Czech Republic..................... 18 The Netherlands.................. 46
Global Contacts 68
Denmark.............................. 20 New Zealand........................ 48
List of Abbreviations 70
Estonia................................. 21 Nigeria................................. 50
List of Footnotes 71
Finland................................. 22 Norway................................ 51
France.................................. 23 The Philippines.................... 53
Georgia................................ 24 Poland................................. 54
Germany.............................. 26 Singapore............................ 55
Ghana.................................. 28 Spain.................................... 56
Greece.................................. 29 Thailand............................... 58
Hong Kong........................... 31 Trinidad and Tobago............. 59
Hungary............................... 32 Turkey.................................. 60
Indonesia............................. 34 United Arab Emirates........... 62
Ireland................................. 35 Ukraine................................ 63
Israel.................................... 36 Vietnam............................... 65
2 Tax, Compliance & Investigations | 2015
Introduction
Dear reader,
Corruption is one of the greatest chal- perpetrator as well as the damage caused
lenges companies face in terms of by corruption.
compliance with the legal and regulatory
framework. Since the OECD Convention Due to the increasing international inter-
on Combating Bribery of Foreign Public connectedness of national economies and
Officials in International Business Transac- the companies operating within them, the
tions and the United Nations Convention tax and business decisions of a domestic
against Corruption came into force in company have an impact on their foreign
1997 and 2003 respectively, the signatory subsidiaries, as well as their national and
states have also tightened their tax laws. international business partners. At the
Germany, for example, has made kickback same time, national authorities endeavour
payments non-tax-deductible through to secure and protect their countries‘ tax
changes to its Income Tax Act. In this study, revenue.
we aim to take a look beyond Germany’s
borders. How have individual countries National tax authorities have reacted to
implemented the legal requirements and this interconnectedness and are increas-
how do the authorities in these countries ingly collaborating not only with local law
deal with such offences in practice? In this enforcement authorities, but also with
regard, we have consulted tax and compli- foreign tax authorities.
ance experts in the WTS Alliance from 38
important countries. This study aims to make national and
international corporate decision-makers
When employees are found to have acted aware of this significant risk so they can
corruptly, the damage to reputation is high take appropriate preventive and repres-
– even years later. The loss of sales as well sive action in their companies. This also in-
as fines and custodial sentences result in cludes examining the concept of „compli-
considerable financial and personal dam- ance“. By introducing an effective system
age. Corruption detection is practised by to comply with laws and guidelines, risks
various private and governmental bodies, that are damaging to the company, such as
with tax audits by the tax authorities play- corruption, can be detected and combated
ing a central role in this respect. They do with the aid of suitable measures, such as
not just frequently uncover the existence internal investigations. This also serves to
of corruption, but also pass on these safeguard the company‘s assets in the long
findings to the law enforcement authori- term and to avoid management liability.
ties. Fact-finding experts both inside and
outside the company regularly collaborate We hope that this uniquely themed study
with the law enforcement authorities on gives you ideas for practical implementa-
these matters in order to determine the tion within your company.
Christian Parsow Dr Gregor Sobotta Mirco Vedder
Tax, Compliance & Investigations | 2015 3
Objective and Design of the Study
This “Tax, Compliance & Investigations” by the respective contact person. All de-
study provides a general overview of tails and information stated here corre-
the role of the tax audit in detecting and spond to the legal status of the respective
pursuing corruption, as well as the legal countries for the years 2014/2015, which
provisions for the prevention of corruption may change over time. Please note that
in 38 key countries. this study is merely a general presentation
of complex issues for each participating
The objective of this study is to make country.
decision-makers and other interested par-
ties aware that corruption can be detected Therefore, this study cannot replace advice
at any time within a tax audit. The lines of on tax or legal matters nor on complex
communication with the law enforcement issues in the area of compliance and inves-
authorities associated with the detection tigations.
regularly lead from tax-related proceed-
ings to criminal proceedings with conse- Our contact persons in the respective coun-
quences for the company and personal tries and the authors of the study would
implications for members of its corporate be pleased to answer any questions you
bodies. may have on the subject of “Tax, Compli-
ance & Investigations”. Although this study
This is an expert study based on selected has been prepared with the utmost care*,
information from our contacts in the coun- neither the authors of the study nor any
tries participating in our network, the WTS of the participating companies in the WTS
Alliance. The answers were obtained by network can be held responsible or liable
means of an electronic survey. The country for the contents and form of content pre-
summaries we prepared were confirmed sented in the study.
* We would particularly like to thank our WTS colleagues Karsten Gnuschke, Florian Kestler, Jennifer Körber,
Agnes Hanko and Anahita Mittertrainer for their support in the realisation of this study.
4 Tax, Compliance & Investigations | 2015Analysis of Survey Results – Our Summary
Despite a strong variation in nature, scope Against the background of the worldwide How high do you perceive the risk of bri-
and frequency, tax audits take place in al- spread of bribes being banned as tax- bes being detected during a tax audit?
most all of the countries that participated deductible operating expenses (in 95% of high 8%
in our study. The United Arab Emirates is surveyed countries, see Table 1) and the
one exception, as companies there are endeavours of many tax authorities to rather high 29 %
generally not taxed. safeguard their national tax revenue, it is
rather low 37 %
not surprising that the tax authorities in
While in Germany the frequency of tax 50% of participating countries are already low 24 %
audits depends on the legal form and size subject to a requirement to detect sus-
of the company, in the other participating pected bribes within the tax audits they n.a. 3%
countries, the selection and frequency are carry out (see Table 2). Thus, a trend can be
based on a wide range of criteria. So, for seen towards extending this procedure to Table 3: Rating by participant countries of the risk of
example, in Belarus, Estonia and Ireland countries whose tax authorities currently corruption being detected in the tax audit
the companies to be audited are selected do not practise the detection of corruption.
based on risk orientation, while in Den-
mark, Thailand and Singapore they are se- If corruption is detected during the tax
lected randomly in association with a fixed Do tax authorities investigate issues indi- audit, other authorities such as tax in-
framework of criteria. However, our study cating signs of corruption? vestigators, the public prosecutor’s office
generally showed that, in the majority of or other authorities responsible for the
3%
countries, large companies and companies pursuit of corruption become involved.
in high-risk or highly regulated industries In 74% of participating countries, the tax
are audited more frequently and in more authorities are in fact subject to a report-
depth by the tax authorities than, for ing requirement if evidence of corruption
example, small and medium sized entities is identified. In the majority of cases (68%),
n.a.
(SME). This is particularly true in Germany, the public prosecutor’s office is informed
47 % no
Nigeria, Ghana, China, Austria, Poland, (see Table 4). Generally the tax authorities
yes
France, Italy, Mexico, Greece, Trinidad and 50 % then also work in conjunction with the
Tobago, Hong Kong, Hungary and Korea. public prosecutor’s office.
Table 2: Percentage of surveyed countries with a tax
Are bribes tax-deductible? disclosure requirement in the event of suspicion Does the public prosecutor‘s office have to
5% be informed, if there are clear suspicions
of criminal acts related to corruption?
Awareness that law enforcement authori-
yes 68 %
ties are pursuing evidence of corruption in
companies “through the back door” of the no 5%
n.a.
tax audit is often not yet evident. On the
no n.a. 26 %
one hand, tax auditors in one in every two
countries are pursuing possible bribes.
95 % On the other, more than half (61%) of Table 4: Percentage of countries with a requirement
study participants rated the ability of their to inform the public prosecutor’s office
Table 1: Percentage of surveyed countries where national tax auditor to detect corruption as
bribes are not allowed as tax-deductible operating low to very low. Only 37% of participants
expenses
rate the risk of detection as high to very
high (see Table 3). We expect the probabil-
ity of detection to rise in future.
Tax, Compliance & Investigations | 2015 5There is currently no general requirement → Contracts (mentioned by 79% of partici- Because all countries participating in our
for national tax authorities to inform pants) study have signed and/or ratified the UN
foreign tax authorities on matters of → Proof of existence (68%) Convention against Corruption, corruption
corruption when foreign subsidiaries are → Invoice approvals (68%) is also pursued as a criminal offence in all
involved. Such a requirement only exists → Payment approvals (63%) these countries. Nevertheless, our study
in 42% of participating countries (see → Proof of performance (53%) showed that the regulations on custodial
Table 5); for example, in Brazil, Finland, sentences, fines and other penalties
Hungary, Ireland, Italy, Norway, Poland The focus is on business activities involving under tax and criminal law vary greatly
and Spain. third parties such as sales intermediaries from country to country. For example, the
or agents, regardless of whether they are maximum custodial sentence for corrup-
located within the country or abroad. They tion offences is ten years in Hungary, 20
Does the domestic tax authority have an are often non-transparent and can be used years in Greece, and even a life sentence in
obligation to report criminal acts related to shield business that is transacted using Korea and Vietnam. The death penalty can
to corruption to foreign tax authorities in bribes. It is therefore not surprising that also be imposed for corruption offences in
case affiliated companies are involved? the authorities often have specific require- Vietnam. In contrast, in the Netherlands,
ments for increasing the transparency of corruption in commercial practice only
24 % such business activities. Thus, in 63% of attracts a custodial sentence of two years,
participating countries, there are, in prin- while a sentence of six years applies to tax
cipal, increased documentation require- offences.
ments for business activities with sales
agents (see Table 6). These requirements Fines, in particular, vary enormously.
n.a. may be increased even further if the sales While fixed fines are imposed in some
34 % no agents are located abroad, as is the case in countries, in a number of participating
yes Italy, for example. Here, the tax deductibil- countries, relative fines of varying sizes are
42 %
ity of operating expenses from business imposed. The relative fines can range from
Table 5: Percentage of countries with a requirement activities with sales agents located in tax single-digit percentages up to a fine in
to inform foreign tax authorities havens is subject to special obligations to the mid-hundred-percent range. So in the
provide evidence. Netherlands, for example, a fine of up to
EUR 81,000 is imposed under criminal law,
while the fine under tax law for corporate
Regardless of the location that is ultimate- Are business activities with sales agents cases is 100% of the tax involved. In Ghana,
ly responsible, the tax authorities in the required to be further documented? for example, a penalty tax of 100% is im-
majority of countries are encouraged to posed on direct taxes and of 300% on in-
pursue matters of corruption without con- direct taxes. On the other hand, in Ireland
sidering a minimum monetary amount. a penalty tax of 200% of the tax involved
Only 16% of study participants stated that plus 8-10% per annum penalty interest are
3%
there was a materiality threshold for pur- imposed. In Germany, companies can be
suing corruption offences, for example in n.a. fined up to EUR 10 million, while individu-
the Netherlands, Ukraine, China, Denmark, no als must also expect substantial fines.
34 % yes
Brazil and Indonesia.
63 %
If evidence of corruption is identified Table 6: Percentage of countries with increased
during a tax audit, there is generally no documentation requirements for sales agents
requirement for the affected company
to provide the tax auditor with specific
legally defined documents to prove that
outgoing payments are not bribes. Tax
auditors can essentially request any kind
of documentation during the tax audit
in order to evaluate whether operating
expenses are tax deductible. However, the
following types of documentation were
most frequently mentioned by our study
participants as needing to be provided or
that the tax authorities expected them to
be provided in such cases:
6 Tax, Compliance & Investigations | 2015Our study also found that, in many coun- The statute of limitations for corruption of- Our survey showed that compliance is,
tries, further penalties are imposed in fences under tax law and criminal law vary generally across countries and different
addition to custodial sentences and fines. greatly from country to country. The points business environments, defined as con-
Examples of these include asset recovery, in time from which statutes of limitations formity with laws and internal guidelines.
as well as disqualification from holding run also vary widely. However, there are slight differences
specific positions or participating in public between countries when it comes to the
tenders. In Estonia, for example, cor- In general, there is no possibility of im- specific laws one should comply with. In
ruption offences are not just punishable munity if an offence has been attempted some countries, for example Mexico, the
through custodial sentences and fines, or committed. The possibility of mitigation Netherlands, Poland as well as Trinidad
but also by compulsory dissolution of the or immunity only exists in a few of the and Tobago, compliance includes, in
company. participating countries, such as Ukraine, particular, the fulfilment of tax laws. For
Greece, Belarus and Hungary. In Germany, other countries, such as Mauritius, compli-
Bribing public officials is also penalised on the other hand, there is no possibility ance additionally means adhering with
and handled in different ways. Thus, in of immunity under criminal law; how- company law, anti-money laundering law
many countries, the same penalties apply ever, under tax criminal law a voluntary and fiscal law, whereas in Ireland business
to bribing public officials as to bribery in self-disclosure or an adjustment of the tax should be conducted according to not only
commercial practice. For example, this is return may be made. company law but also according to health
the case in Estonia, the Czech Republic, and safety at workplace law, pensions law,
Denmark, Italy, Nigeria, Ireland and Nor- In connection with pursuing corruption accounting standards and employment
way. However, different, generally more under tax or criminal law, the question law. In Georgia, however, compliance
stringent, penalties apply to bribing public arises as to what obligations the taxpayer differs depending on the type of business,
officials in 55% of participating countries. has when they subsequently realise that e.g. gambling is a strictly regulated sphere
the tax returns are incorrect. An additional of activity and therefore subject to special
Fundamentally, penalties against corrup- corruption-related risk may arise for com- monitoring regarding its compliance with
tion do not just affect natural persons, but panies from such obligations. As bribes are regulatory framework.
also companies. As a corporate criminal by their very nature concealed and accord-
law now exists in most of the surveyed ingly find their way into the tax returns In some countries, compliance addition-
countries (74%, see Table 7), companies as operating expenses, the tax returns ally means adhering to professional or
can be penalised in a variety of different provided are therefore incorrect. regulatory rules or guidelines. Such is the
ways. In most cases, this is imposed in the case, for example, in China, the Philippines
form of fines, asset recovery and dis- In this context, our study showed that and Denmark.
qualification from participation in public there is generally a requirement to
tenders. provide corrected tax returns. Fines or
custodial sentences are frequently still im-
posed in addition. In China, for example, if
Does a corporate criminal law exist? the tax return is subsequently found to be
incorrect, the qualified tax advisor can be
yes 74 % found guilty of aiding and abetting, and
no 18 % be held responsible for this.
n.a. 8% As each company has to adhere to numer-
ous laws, regulations and policies in its lo-
Table 7: Percentage of countries with corporate cal market, let alone on the global market,
criminal law we asked our survey participants for a
definition of compliance in their business
environment.
Tax, Compliance & Investigations | 2015 7Bribery and corruption may pose a great This gave two very different sets of results. Conclusion and Guidance
threat to global businesses as countries In half of these countries, corporate bodies
have different cultural attitudes toward are made liable for corruption offences, As corruption is still widespread globally,
fraud and corruption. Furthermore, they despite there being no legal requirement compliance with the legal and regulatory
may also have fewer regulations against for compliance management systems, framework, especially in this area, re-
bribery and corruption as well as less-con- while no liability exists in the other half. mains a challenge to companies operating
sistent enforcement of those regulations. Furthermore, our study showed that, at nationally and, particularly, international-
Our survey results suggest that having in present, companies are generally not ly. This challenge should not be underesti-
place compliance programs is highly im- liable for corruption offences commit- mated due to the stricter penalties and the
portant, not only for ensuring compliance ted by employees of foreign subsidiaries. associated reputational damage. In future,
with laws, regulations and guidelines but Although the risk of criminal law penalties companies should consider in their risk
also for preventing corruption. for parent companies is manageable at assessment the fact that the detection of
present, there is still at least a high reputa- possible corruption is more likely if tax au-
However, our study also showed that tional risk and the risk of penalties under thorities are subject to the requirement to
compliance systems are generally not pre- criminal law for the foreign subsidiaries systematically detect bribes in the course
scribed by law. Only 21% of participating affected. of regular tax audits. Finally, companies
countries stated that a legal provision of are increasingly required to make effective
this kind existed in their country (see Table Overall, the results of our study illustrate provisions to minimise proceedings of
8). This is the case in Germany, Mauritius, that the establishment and existence this kind as part of their tax compliance
Ghana, Ireland, China, Austria, Brazil and of a compliance management system is requirement.
Korea. The participants in countries where important in minimising risk and reducing
compliance management systems are liability. This obligation to detect on the part of the
not legally prescribed were further asked tax authorities and its practical application
whether corporate bodies are liable if they result in a need for action in companies.
have not implemented a compliance man- Thus, a company’s risk horizon should
agement system and corruption offences be adjusted to the standards of the tax
occur, despite a legal provision of this kind audit through the inclusion of corruption
not being in place. detection. Furthermore, there must be
an increased exchange of information
between departments on dealing with
Are companies in your country legally the risks arising from detecting corrup-
required to implement a compliance tion. Companies can operate appropriate
management system? risk management if, in addition to the
yes 21 % risks from white-collar crime, they also
recognise, assess and deal with tax risks
no 79 % resulting from white collar crime and their
consequences.
Table 8: Percentage of countries with a legally
prescribed compliance management system In an emergency, companies should
consult experts to clarify matters, and to
receive tax and legal advice.
8 Tax, Compliance & Investigations | 2015Austria Dr Hartwig Reinold
+43 124 266-10
hartwig.reinold@wts.at
Population (2013)1 Risks Resulting from Tax Audits While there are no specific documentation
8.5 million requirements for business activities with
In general, tax audits for companies are domestic sales agents (in view of the pos-
Gross domestic product (2013)1
performed either continuously or with ir- sibility of comprehensive investigations
USD 416.1 billion
regular intervals every three years related across the service/supply chain), there
CPI2 (2014)3 to form and size of the organisation. is an increased duty to cooperate with
Rank: 23 | Score: 72 Particularly, large companies are facing tax regard to the existence of foreign coun-
audits continuously, whereas mid-sized terparties such as proving the existence of
Annual tax revenues (2012)4 companies are regularly audited in bigger business transactions to prevent abuse of
18.3 % of GDP time intervals with discontinuous periods right if any.
(audit period is equal to three years).
Exports5 (2013)1
USD 166.3 billion In general, the risk of bribes being de- Risks Resulting from Sanctions
Degree of internationalisation (2013)1
tected during the tax audit is perceived to and Liability
be rather low. Tax authorities are required
53.5 % exports6 of GDP
to detect or investigate signs of corrup- In Austria, a corporate criminal law exists.
Do sanctions on corruption exist? tion within tax audits as there is a statu- Companies are legally required to imple-
Yes tory prohibition with regard to grants and ment a compliance management system.
contributions. Tax authorities are further However, corporate bodies of parent
Does a legal requirement to implement required to report clear signs of corrup- companies are not liable for criminal acts
a CMS7 exist? tion to the financial criminal authorities of corruption committed by employees of
Yes (‘Kriminalpolizei’ / ‘Staatsanwaltschaft’), foreign subsidiaries / affiliates.
the governmental bodies of Austria tasked
Has the UN Convention against Corruption dated
9 December 2003 been signed and ratified?8 with investigating corruption in cases with
Signed on 10 December 2003 evidence that a particular contribution in Compliance in the participant’s business
Ratified on 11 January 2006 cash / in kind is effectively connected with environment is defined as compliance
a service received in return. Tax authori- with law.
Has bribery of public officials been criminalised? ties are also required to collaborate with
Yes these authorities in case clear suspicions
of corruption-related criminal acts are Corruption is threatened by law with
identified during a tax audit. Authorities judicial punishment. Bribery in B2B-
prosecute all cases of corruption as there business as well as in cases with public
is no de minimis threshold. Domestic tax authorities, especially in connection with
authorities are not obliged to report to public officials is criminalised. Sanctions
foreign authorities when affiliated compa- for corruption are provided under various
nies are involved in criminal acts related to Austrian laws. The company laws (GmbHG
corruption. and AktG) provide compensations claims.
The Austrian labour legislation contains
In case signs of corruption are identified the sanction of untimely dismissal, the
during a tax audit, the audited companies Austrian criminal law provides sanctions
should provide the tax auditor with veri- for corruptibility and the Austrian tax
fications of existence, contracts and per- law regulates the non-deduction of such
formance records as well as invoice and payments. Generally, bribe payments
payment approvals as proof that outgoing are deemed as ineffective transactions
payments are not potential bribes. because of violation of morality.
Tax, Compliance & Investigations | 2015 9In addition to that, further sanctions are imposed on corruption / bribery such as penalty taxes in the range of 20% to 100% depending on the structure of the corruption scheme, size of corruption, type of event (one time action or repeated actions), evidence of a clear intention to fraud etc. Under Austrian criminal law prison sen- tences vary depending on the value of the corruption case. Generally, a prison sentence up to two years is applicable. In case the value of corruption will exceed EUR 3.000, the prison sentence is to be increased up to three years, and finally in case of a corruption amounting more than EUR 50.000, the prison sentence is to be increased up to five years. The criminal limitation period for offences related to corruption ranges between five to ten years depending on the particular sanction and prison sentence. However, the fiscal limitation period is five years. Both, the criminal and fiscal limitation period, begin running when the crime committed / the offence is successfully fin- ished. Neither fiscal nor criminal exemp- tions can be applied in case of criminal acts related to corruption. In case subsequent knowledge of incor- rect tax declarations is gained, tax payers are obliged to disclose all information and data in order that the appropriate tax liability can be determined. 10 Tax, Compliance & Investigations | 2015
Belarus Kiryl Apanasevich
+375 17 306-2102
kiryl.apanasevich@sorainen.com
Population (2013)1 Risks Resulting from Tax Audits In case signs of corruption are identified
9.5 million during a tax audit, there is no specific list
In Belarus, the frequency of tax audits of required documents established by law.
Gross domestic product (2013)1
is not related to the size or form of the The audited companies may provide the
USD 71.7 billion
company. Rather it is related to a risk tax auditor with verification of existence,
CPI2 (2014)3 group to which a particular company is at- background/press checks, contracts,
Rank: 119 | Score: 31 tributed to due to its activity in accordance performance records, personal contracts,
with law. High risk group companies are calculations of margins, protocols on
Annual tax revenues (2012)4 audited once a year (once in two years the outcome, records of interviews and
15.1 % of GDP subsequently, if the tax authority finds invoice and payment approvals as well
no violations of law). Medium risk group as any further documents not indicated
Exports5 (2013)1 companies are audited once in three years above to prove that outgoing payments
USD 37.2 billion (once in five years subsequently, if the tax are not potential bribes.
authority finds no violations of law). Low
Degree of internationalisation (2013)1
risk group companies are audited once in There are documentation requirements
61.2 % exports6 of GDP
five years. for business activities with sales agents,
Do sanctions on corruption exist? whether domestic or foreign based.
Yes The risk of bribes being detected during
the tax audit is perceived to be rather low.
Does a legal requirement to implement Although tax authorities are not tasked Risks Resulting from Sanctions
a CMS7 exist? directly to detect or investigate signs of and Liability
No corruption, Ministry of Taxes and Duties, as
well as tax inspections are considered to In Belarus, corruption – including bribery
Has the UN Convention against Corruption dated
9 December 2003 been signed and ratified?8 be the bodies which participate in corrup- of government officials – is a punishable
Signed on 28 April 2004 tion combating according to Belarus law. criminal offence. Sanctions imposed are
Ratified on 17 February 2005 However, tax authorities are required to prison sentences of 15 years and penalty
report clear signs of corruption to the pub- taxes. These are calculated for each day
Has bribery of public officials been criminalised? lic prosecutor’s office, the State Security of overdue as a percentage of the unpaid
Yes Committee, the Investigation Committee sums of taxes taking into consideration a
and the Ministry of Internal Affairs, which percentage which is equal to 1/360 of the
are the governmental bodies tasked with National Bank refinancing rate in effect
investigating corruption. They are also during the period of tax duty fulfilment.
obliged to report to and collaborate with Other sanctions include confiscation of
the public prosecutor’s office and other property (exception: the property which
state authorities responsible for combat- is indicated by law as life-essential cannot
ing corruption (e.g. State Security Com- be confiscated), deprivation of the right
mittee) in case clear suspicions of criminal to occupy certain positions or carry out
acts related to corruption are identified certain activities, fines (1000 basic units:
during a tax audit. Generally, authorities approx. EUR 10,000 as of 3 February 2015),
are obliged to prosecute all cases of cor- restriction of liberty (5 years), community
ruption as there is no de minimis thresh- service (two years) and arrest (6 months).
old.
The criminal limitation period is fifteen
Belarusian tax authorities are not obliged years and begins running from the date
to report criminal acts related to corrup- the offence was committed. Criminal
tion to foreign tax authorities in case affili- exemptions can be applied if the person
ated companies are involved. who bribed was extorted to do so and
voluntarily reported about the bribery af-
ter it occurred. There is no fiscal limitation
period on offences related to corruption.
However, in case a sum of unpaid taxes is
repaid, a taxpayer is allowed to apply for
fiscal exemption from penalty taxes.
Tax, Compliance & Investigations | 2015 11In Belarus, a corporate criminal law does not exist. In case subsequent knowledge of incorrect tax declarations is gained the company concerned is obliged to submit the tax declaration with correct data. In case the tax audit revealed the incorrect tax decla- rations, an administrative fine is to be paid in accordance with the law. Bribes are not tax-deductible. There is no legally established definition of compliance in Belarus. Corporate bodies of parent companies are not liable for criminal acts of corruption committed by employees of foreign sub- sidiaries. Companies are neither legally required to implement a compliance man- agement system, nor are corporate bodies liable in case they have not implemented a compliance management system and a case of corruption occurs. 12 Tax, Compliance & Investigations | 2015
Brazil Luis Farinelli
+55 11 3093-4699
LFarinelli@machadoassociados.com.br
Population (2013)1 Risks Resulting from Tax Audits The risk of bribes being detected during
200.361 million the tax audit is perceived to be rather low
The frequency of tax audits in Brazil is by our experts. Tax authorities are not
Gross domestic product (2013)1
based on two pillars, as legal entities in required to detect and investigate signs of
USD 2,246.0 billion
Brazil have the choice between an actual corruption within tax audits. Nevertheless,
CPI2 (2014)3 profit or deemed profit system to calcu- they are required to report to and collabo-
Rank: 69 | Score: 43 late their Corporate Income Tax (IRPJ) and rate with the public prosecutor’s office
Social Contribution on Net Profits (CSLL). in case clear suspicions of criminal acts
Annual tax revenues (2012)4 Within the second system that is usually related to corruption are identified during
15.4 % of GDP adopted by small-to-medium sized com- a tax audit. Additionally, the domestic tax
panies, taxable profits are calculated on a authority has an obligation to report crimi-
Exports5 (2013)1 quarterly basis, based on the sum of per- nal acts related to corruption to foreign tax
USD 242.2 billion centages of taxpayer’s gross revenues. The authorities when affiliated companies are
actual profit system, on the other hand, is involved.
Degree of internationalisation (2013)1
adopted mostly by big companies and it is
12.6 % exports6 of GDP
mandatory for some specific legal entities,
In general, tax authorities’ reports to
Do sanctions on corruption exist? such as financial institutions and com-
foreign tax authorities contain the fol-
Yes panies that earn profits, income or gains
lowing information:
abroad and generally companies with to-
→ Company name
Does a legal requirement to implement tal revenues, in the former calendar year,
a CMS7 exist?
→ Persons involved
exceeding BRL 78 million per year or BRL
Yes
→ Deducted operating expenses
6.5 million per month. Companies adopt-
→ Reasons for assessing payments as
ing the actual profit system calculate their
Has the UN Convention against Corruption dated potential bribes
9 December 2003 been signed and ratified?8 final taxable income quarterly or annually,
Signed on 9 December 2003 based on their net results shown on the
Ratified on 15 June 2005 taxpayer’s financial statements, including
capital gains, adjusted for additions and In case signs of corruption are identified
Has bribery of public officials been criminalised? exclusions legally provided for and offset- during a tax audit, companies should
Yes ting of tax losses or negative CSLL basis of provide tax auditors with verification of
previous tax base period. In general, com- existence, personal contact information
panies adopting the actual profit system and invoice approvals as proof that outgo-
are more likely to be audited as well as big ing payments are not potential bribes.
taxpayers (“maiores contribuintes”) will
be subject to continuous tax audits. Authorities are required to prosecute cases
of corruption, in particular wilful miscon-
duct, fraud or sham, for which the penalty
A legal entity will be classified as a big is equal or higher than 150 %. The percent-
taxpayer considering: age of such a fine may achieve 225 % if
→ its gross revenue declared on Corpo- the taxpayer, besides committing one of
rate Income Tax Return (DIPJ) the aforementioned acts, does not respect
→ the debts declared on its Declaration the administrative notification to clarify
of Debits and Credits of Federal Taxes objected facts, to present files or digital
(DCTF) systems regarding accounting and fiscal
→ the total amount of wages paid by information and to deliver the complete
the company according to FGTS and technical documentation of the data-pro-
Social Security Information Payment cessing system.
Form (GFIP)
→ the total debits declared on its GFIP Business activities with domestic based
→ the representativeness of the com- sales agents do not need to be further doc-
pany on the collection of taxes ad- umented, whereas business activities with
ministrated by the Brazilian Federal foreign based sales agents require stricter
Revenue (RFB) records. In the latter case, the invoice as
well as the contract between the parties
must be provided to the bank which per-
forms the exchange agreement.
Tax, Compliance & Investigations | 2015 13The Brazilian tax system provides special Risks Resulting from Sanctions Recently, Law 12846/13 has established
deductibility rules for transactions car- and Liability that legal entities may be penalized on
ried out with low taxation jurisdictions civil and/or administrative spheres for
and with privileged tax regimes. In this In Brazil, companies are legally required specific injurious acts practiced against
context, payments remitted to tax havens to implement a compliance management public (national and foreign) administra-
or to privileged tax regimes are subject to system. However corporate bodies of par- tion. Such responsibility does not exclude
general non-deductibility, transfer pricing ent companies are not liable for criminal possible criminal, civil and/or administra-
and thin capitalization rules. acts of corruption committed by employ- tive sanctions on directors or any natural
ees of foreign subsidiaries. person. Among other acts, that law consid-
ers “promising, offering or giving, directly
Low taxation jurisdictions: Compliance in our Brazilian expert’s busi- or indirectly, improper benefits for public
→ do not allow the access to informa- ness environment is defined as conducting agent or any third related parties” as an
tion about the shareholding structure business according to the internal rules/ injurious act to public administration. In
of legal entities, their ownership, or laws. this context, a case of corruption could
the identification of the beneficial imply sanctions not only for the individuals
owner of income earned by non- Since corruption – including bribery of involved but also for legal entities.
residents government officials – is a punishable
→ do not tax the income at maximum criminal offence in Brazil, sanctions are Tax crimes are punished with fines and/
rates which are lower than 20% imposed such as prison sentences, penalty or reclusion from two to five years or
taxes and, for government officials, exclu- detention from generally six months to
Privileged tax regimes: sion from the public sector for a certain two years, whereas corruption is punished
→ do not tax income, or tax income at period of time. with fines and/or reclusion from generally
maximum rates lower than 20% two to twelve years.
→ provide tax advantages to non-res-
Tax crimes according to the Brazilian
idents (individuals or legal entities) According to Law 12846/13, legal entities
legal system:
conditioned upon the non-perfor- may be punished with fines, in case they
→ Clandestine import of goods
mance of substantial economic activi- are involved with corruption schemes.
→ Not paying or reducing tax payments
ties in the relevant jurisdiction, or Furthermore, companies may be subject
→ Rendering false information or not
without requiring the performance of to more severe sanctions, such as loss of
declaring revenues, assets or facts or
substantial economic activities in the goods, rights or values which represent
using any other fraudulent means to
relevant jurisdiction improper benefit obtained directly or
reduce taxes totally or partially
→ do not tax the income earned outside indirectly from the practiced injurious act;
→ Not paying taxes or social contribu-
the relevant territory, or tax such suspension or partial interruption of its
tions collected from third parties in
income at maximum rates lower than activities; mandatory dissolution of a legal
the amount required for such collec-
20% entity; prohibition to receive any kind of
tion
→ do not allow access to information benefit, loan or financing from public enti-
→ Demanding, paying or receiving any
about the shareholding structure of ties or even from public financial institu-
percentage of tax benefits
legal entities, ownership of assets tion between one to five years.
→ Not investing amounts received or re-
and rights or economic transactions
funded as tax incentives or not using
performed In Brazil, there is no statute of limitations
such amounts as provided by the law
for criminal offences related to corruption
→ Using or promoting software that
or bribery and criminal exemptions do not
allows taxpayers to have different
exist. The fiscal limitation period, on the
information than that provided by
other hand, is five years and fiscal releases
the law to the Public Treasury
as well as other exemptions such as bar-
gain agreements can be applied.
In case of companies gaining subsequent
knowledge of incorrect tax declarations
they are obliged to pay penalties ranging
from 75 % to 150 % of the infringement.
Bribes are not tax-deductible.
14 Tax, Compliance & Investigations | 2015China Martin Ng
+86 21 5047 8665
martin.ng@worldtaxservice.cn
Population (2013)1 Risks Resulting from Tax Audits PRC authorities are obliged to prosecute
1.357 billion corruption in cases amounting to 50 % to
In China, there is no specific rule or regu- 500 % of the tax fund or where the taxes
Gross domestic product (2013)1
lation stipulating the frequency of tax or interests are underpaid or overdue.
USD 9,469.1 billion
audits. Generally, the People’s Republic of
CPI2 (2014)3 China (hereinafter also “PRC”) tax authori- It should be noted that there are strict
Rank: 100 | Score: 36 ties will perform tax audits on PRC com- documentation requirements for busi-
panies once every three years and would ness activities with sales agents, whether
Annual tax revenues (2011)4 generally look into the tax issues of a PRC domestic or foreign based.
10.6% of GDP company for the recent three years in a tax
audit. In practice, our experts have also
Exports5 (2013)1 seen that regular tax audits may be ex- Risks Resulting from Sanctions
USD 2,209.0 billion tended to once every five years. For those and Liability
tax bureaus which lack resources, a check-
Degree of internationalisation (2013)1
list would be distributed to PRC companies In China, corruption and bribery is crimi-
26.4 % exports6 of GDP
for self-inspection instead of regular tax nalised. Individuals and legal entities can
Do sanctions on corruption exist? audits. In the event that the company is be penalized with prison sentences and
Yes reported by whistle-blowers, the PRC tax penalty taxes. A corporate criminal law
authorities will arrange for a special tax exists.
Does a legal requirement to implement audit immediately. Such companies may
a CMS7 exist? be subject to tax audits throughout the In case of bribery of government of-
Yes year. Furthermore, larger sized companies ficials the following sanctions apply. For
with substantial related parties’ transac- individuals offering a bribe higher than
Has the UN Convention against Corruption dated
9 December 2003 been signed and ratified?8 tions or non-trade payments to overseas CNY 10,000 to a government official, a
Signed on 10 December 2003 are likely subject to tax audits. prison sentence of maximum 5 years can
Ratified on 13 January 2006 be imposed. A bribe between CNY 200,000
The risk of bribes being detected during and CNY 1 million will be considered as
Has bribery of public officials been criminalised? the tax audit is perceived to be high. Al- “serious offence” and leads to a prison
Yes though tax authorities are not required to penalty from 5 to 10 years. Individuals of-
detect and investigate signs of corruption fering a bribe to government officials that
within tax audits, they are, nevertheless, leads to direct economic damage over CNY
required to inform the tax investigation 1 million, which is considered as “causing
office and the public prosecutor’s office in serious damage to the State’s interest”
case they do identify such signs during a risk a prison penalty from 5 to 10 years. A
tax audit. Furthermore, tax authorities are bribe over CNY 1 million or causing direct
obliged to report to and collaborate with economic damage over CNY 5 million is
the public prosecutor’s office in case clear considered as “very serious offence” and is
suspicions of criminal acts related to cor- sentenced with a prison penalty of either
ruption are identified during a tax audit. over 10 years or for an indefinite period
However, domestic tax authorities are not as well as the confiscation of property.
required to report criminal acts related to Entities offering bribes to government
corruption to foreign tax authorities when officials will face penalties the amount
affiliated companies are involved. of which depends on the circumstances
of the crime. Furthermore, the in-charge
In case signs of corruption are identified person of the entity will be punished with
during a tax audit, companies should a prison sentence of maximum 5 years.
provide tax auditors with contracts, calcu-
lations of margins as well as invoice and
payment approvals as proof that outgoing
payments are not potential bribes.
Tax, Compliance & Investigations | 2015 15In case of commercial bribery the follow- In case subsequent knowledge of incorrect
ing sanctions apply. For individuals offer- tax declarations is gained, the tax agent
ing a bribe higher than CNY 10,000 (local can be considered as accomplice and held
practice may vary), a prison sentence at liable for the crime. Bribes are not tax-
maximum three years can be imposed. deductible in China.
If the bribe is over CNY 100,000 (local
practice may vary), a prison sentence from Compliance in our expert’s business en-
3 to 10 years can be imposed plus penalty. vironment is defined as compliance with
Entities offering bribes to government national and local laws and regulations
officials will face penalties the amount as well as compliance with professional
of which depends on the circumstances codes.
of the crime. Furthermore, the in-charge
person of the entity will be punished with Companies are legally required to imple-
a prison sentence of maximum three years ment a compliance management system.
if the bribe exceeds CNY 30,000 (local Furthermore, corporate bodies of parent
practice may vary). If the bribe is over companies are liable for criminal acts of
CNY 200,000 (local practice may vary), a corruption committed by employees of
prison sentence from 3 to 10 years can be foreign subsidiaries and can be sanctioned
imposed plus penalty. with exclusion from tendering for public
contracts and restrictions to future invest-
There is neither a criminal nor a fiscal ment. There is no time limit for exclusions
limitation period for offences related to from tendering for public contracts but
corruption. Furthermore, there are no since it is prerequisite that the company
criminal or fiscal exemptions from punish- intending to tender for public contracts
ment which can be applied in case of should have a clear no-bribery record for
criminal acts related to corruption. three years prior to the bidding, this may
imply that the time limit is three years.
16 Tax, Compliance & Investigations | 2015Republic of Cyprus Nicolas Kypreos
+357 22 028700
nicolas.kypreos@wtscyprus.com
Population (2013)1 Risks Resulting from Tax Audits Risks Resulting from Sanctions
1.14 million and Liability
The frequency of tax audits on companies
Gross domestic product (2014)1
in Cyprus depends on various factors, Under criminal as well as fiscal law, sanc-
USD 23.3 billion
such as the level of compliance of the tions are imposed on corruption / bribery
CPI2 (2014)3 company as well as financial ratios based such as prison sentences of maximum
Rank: 31 | Score: 63 on submitted tax returns. However, the seven years and additionally EUR 100.000
exact methodology for determining the fines. In addition, any bribe that is the
Annual tax revenues (2012)4 frequency of tax audits and the companies subject matter of the offence is subject to
25.5% of GDP to be audited is publicly not available. confiscation. In case government officials
are involved in criminal acts related to cor-
Exports5 (2013)1 The risk of bribes being detected during ruption no other sanctions apply.
USD 2.1 billion the tax audit is perceived to be rather
low. Tax authorities are not required to A corporate criminal law does not exist
Degree of internationalisation (2010)1
detect or investigate signs of corruption and currently, there is no criminal or fiscal
40.1 % exports of GDP
6
within tax audits but the scope of a tax limitation period for offences related to
Do sanctions on corruption exist? investigation may include such a possibil- corruption. Exemptions from punishment
Yes ity. In case they actually identify signs of for corruption related crimes can only be
corruption during a tax audit, they would applied in case a person has immunity
Does a legal requirement to implement report to and collaborate with the public from prosecution such as e.g. the Presi-
a CMS7 exist? prosecutor, the Unit for Combating Money dent.
No Laundering (UCML) or both. It is not clearly
defined whether or not tax authorities There is no specific reference in the law
Has the UN Convention against Corruption dated
9 December 2003 been signed and ratified?8 are obliged to report to the public pros- regarding obligations that result from the
Signed on 9 December 2003 ecutor’s office in case clear suspicions of subsequent knowledge of incorrect tax
Ratified on 23 February 2009 criminal acts related to corruption are declarations. However, since the proce-
identified during a tax audit. However, the dure of a revised submission exists, the
Has bribery of public officials been criminalised? domestic tax authorities and the public company should file a correct tax dec-
Yes prosecutor’s office collaborate on crimi- laration. Furthermore, the directors are
nal acts related to corruption. There are criminally liable against the tax authorities
no amount-related limits of criminal acts and in case they do not report the correct
related to corruption which oblige UCML or figures on purpose they may face criminal
other authorities to prosecute. charges. Bribes are not tax-deductible.
Under local law, Cyprian tax authorities are Compliance in our expert’s business en-
not required to report criminal acts related vironment is defined as compliance with
to corruption to foreign tax authorities in laws.
case affiliated companies are involved. In
case Cyprus has a Double Taxation Treaty Companies are not legally required to
with another country, an exchange of implement a compliance management
information might take place if requested system nor are corporate bodies liable in
by the other country’s tax authorities. case they have not implemented a compli-
However, UCML might report information ance management system and a case of
on criminal acts related to corruption to corruption occurs.
foreign authorities in the process of an
investigation. It is not unlikely that corporate bodies of
parent companies are liable for criminal
In case signs of corruption are identified acts of corruption committed by employ-
during a tax audit, the audited companies ees of foreign affiliates. In such cases,
should provide the tax auditor with con- corporate bodies of parent companies
tracts, performance records and verifica- might be liable through acts such as aid-
tion of existence as well as invoice and ing, abetting, counselling and procuring.
payment approvals as proof that outgoing In case corporate bodies are found liable,
payments are not potential bribes. fines will be imposed.
Tax, Compliance & Investigations | 2015 17Czech Republic Jana Alfery
+420 221 111-777
jana.alfery@alferypartner.com
Population (2013)1 Risks Resulting from Tax Audits In case signs of corruption are identified
10.5 million during a tax audit, companies should
Currently, the frequency of tax audits in provide tax auditors with contracts, as well
Gross domestic product (2013)1
the Czech Republic depends, in particu- as invoice and payment approvals as proof
USD 198.4 billion
lar, on where the registered office of the that outgoing payments are not potential
CPI2 (2014)3 company is located. In large cities in which bribes.
Rank: 53 | Score: 51 a lot of companies are registered, the
capacity of audit departments is not suf- Furthermore, there are no specific
Annual tax revenues (2012)4 ficient to examine all companies, whereas documentation requirements for busi-
13.4% of GDP in small towns the opposite situation ness activities with sales agents, whether
applies. The Tax Administration is aware of domestic or foreign based. Domestic
Exports5 (2013)1 this problem and tries to move workforce tax authorities are also not required to
USD 161 billion to offices in large cities such as Prague, report criminal acts related to corruption
Brno, Ostrava, Plzeň. Furthermore, the to foreign tax authorities when affiliated
Degree of internationalisation (2013)1
Special Tax Office has been established to companies are involved.
77.2 % exports6 of GDP
deal with large companies with annual
Do sanctions on corruption exist? turnover exceeding CZK 2 billion (ap-
Yes prox. EUR 70 million). In large cities, tax Risks Resulting from Sanctions
offices focus, in particular, on VAT since and Liability
Does a legal requirement to implement VAT frauds are currently a big topic in the
a CMS7 exist? Czech Republic (so-called carousel frauds). Bribes are not tax-deductible. Rather, brib-
No Corporate income tax audits focus on ery is criminalised and sanctions imposed
companies having unbalanced economic include prison sentences of twelve years
Has the UN Convention against Corruption dated
9 December 2003 been signed and ratified?8 results, companies that are loss-making on and penalty taxes of CZK 8.7 billion. These
Signed on 22 April 2005 a long-term basis or companies reporting sanctions also apply for government of-
Ratified on 29 November 2013 a low tax base compared to other enti- ficials involved in criminal acts related to
ties engaged in the same field. Tax offices corruption. The criminal limitation period
Has bribery of public officials been criminalised? have analytical departments that seek is fifteen and the fiscal limitation period
Yes out such risky taxpayers. Furthermore, tax is ten years. Both begin running from the
audits are carried out in cases of taxpayers moment the crime was committed. There
who have been denounced as fraudulent are neither criminal nor fiscal exemptions
as well as taxpayers who are associated from punishment which can be applied in
with a criminal cause. Since 2014, a special case of criminal acts related to corruption.
team of police, tax and customs officers
has focused on frauds in the area of excise Companies are obliged to file an ad-
tax and VAT. In small towns, tax offices ditional tax return, in case subsequent
strive to carry out tax audits of most of the knowledge of incorrect tax declarations
major taxpayers once per three years. is gained. Penalties have been imposed
on legal entities for tax offences – tax
The risk of bribes being detected during evasion, failure to pay statutory social
the tax audit is perceived to be low. Tax insurance contributions, subvention frauds
authorities are not required to detect and and environmental damage several times.
investigate signs of corruption within Sanctions imposed on legal entities in
tax audits. They are also not required to the field of corruption have not been
inform any other authority or government published yet. Since 1 January 2015, the
body in case they do identify such signs. procedure to calculate penalties has been
However, they are obliged to report to and made more precise, setting the maximum
collaborate with the public prosecutor’s amount of penalty at CZK 1.46 billion.
office in case clear suspicions of criminal
acts related to corruption are identified
during a tax audit. Authorities prosecute
all cases of corruption as there is no de
minimis threshold.
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