German corruption scandal reveals tax breaks for bribers

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Bribery is, of course, strictly illegal and carries a maximum five-year sentence. But if you are thinking of bribing German officials or businessmen, you can at least comfort yourself with the thought that you save as you bribe. For corruption is tax- deductible - and looks set to stay that way.

In the wake of a recent scandal involving police corruption, there have been calls for a change of the rules. But the government is standing firm.

Hansgeorg Hauser, a government party spokesman on financial policy, admitted this week that bribery might create an "immoral impression" among the population. But, he noted, "tax law never had anything to do with morality". Gisela Frick, of the Free Democrats, the junior party in the centre-right coalition, agreed. "German tax law does not depend on legal and moral behaviour."

Bonn defends the existing system by saying "jobs might even be lost" if international bribery were discouraged. But the sympathetic treatment for bribers applies within Germany, too. The opposition Social Democrats have recently decided that the long-established system is "intolerable" - not just on moral grounds, but because an alleged £40m is lost to the state every year. An official change of heart looks unlikely.

There is a catch in this briber's paradise. The taxman can demand details of the recipient. Theoretically, at least, he can be required to pay tax on the money received. He must then hope that the taxman will not pass on details to the police.

But if recent allegations are anything to go by, this may have little effect. The firm under investigation produces police equipment. In tones of injured innocence, a lawyer for the firm claimed his client had been "practically blackmailed" to pay a 4 per cent cut to the official responsible for clinching a contract.

One officer has already admitted taking £200,000 - while insisting that the money was not a bribe. Another senior officer, in the east German state of Mecklenburg (a west German, appointed to show east Germans how to run a democratic police force), has been held in custody. Inquiries are continuing.

A guidance note from the German finance ministry says other countries, including Britain, have similar provisions for bribing at a discount. According to Bonn, bribes can be set against tax in the UK "if they are for business purposes". But the Inland Revenue insisted yesterday that there must be some mistake. The 1993 Budget excluded claiming a tax rebate on any illegal payments.