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FROM: MAY-JUN 2008 ISSUE | BY VERN KRISHNA
Professionals must often advise on ethical business problems under obscure and complex domestic and foreign laws dealing with bribery and corruption. As governments step up enforcement under domestic and international statutes, we must ensure that we do not expose our clients to undue risk in international corporate transactions.
Canada is obliged under domestic and international law to control bribery and corruption. The laws, however, are not always simple: All bribes are not equal. In certain societies, such payments are necessary – even mandatory – to conduct business. Thus, international conventions do not prohibit facilitation payments to get an official to perform his normal duties and functions. For example, one can pay a foreign official a small amount to issue a permit, licence, visa, or work permit, or offer police protection in the normal course of their duties.
Apart from criminal sanctions, there are also potential tax problems that can make bribes expensive. The Income Tax Act prohibits the deduction of bribes to:
- Canadian judges, members of Parliament, and members of a provincial legislature;
- Canadian law enforcement officers and Canadian government employees in order to obtain contracts or benefits;
- commit frauds on the government;
- influence or negotiate appointments or deal in offices;
- pay secret commissions to government officials; or
- bribe foreign officials to obtain a business advantage.
It is not easy, for tax purposes, to draw the line between bribes and facilitation payments. Bribery – whether by means of a loan, reward, advantage, or benefit – is a criminal offence. Facilitation payments are legal.
As global trade increases, should we apply Canadian tax laws to foreign subsidiaries and affiliates? What of second and third generation subsidiaries? How deep should we fish to catch improper payments by foreign affiliates of Canadian corporations? Should we determine the legality of payments by Canadian or foreign law?
There are no easy answers to these questions. Apart from the obscure legal requirements, professionals must also be vigilant to the ethical dilemmas of such payments.
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