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Germany - a special case

In preparation of the European Community (EC) during the 1980s most industrial countries were discussing and tackling the problem of foreign corruption addressed by the OECD. Therefore, along with the establishment of the European Single Market, 1993, (after the German Reunification) the legalization of foreign corruption and co-financing of bribe money through tax abatement by the Kohl administration (§4 Abs. 5 Nr. 10 EStG, valid until March 19th 1999) was severely criticized by the Bonn Parliament. In a respective Parliamentary Proposal the then current tax law was accused to favour bribery activities abroad:

Parliamentary Proposal: Abolition of the tax deductibility of bribery and kickbacks. The federal government shall be invited to submit a bill by which tax deductibility of bribes and kickbacks ("useful expenses") will be abolished.
Motivation: "When determining taxable income under the existing rules bribe payments and kickbacks are deductible as business expenses if they are paid for operational reasons... For bribe payments and kickbacks to foreign recipients the recipient's identification is even dispensed, if it is established that the recipient is not subject to German taxation. Considering bribes to foreign recipients the Federal Republic of Germany actively favours bribery activity abroad."

Thereafter, a Parliamentary Financial Commission (PFC) of members of the government and the opposition leader prepared a comparative study of the international situation concerning legal corruption. In its Recommendation the Commission confirmed the allegations against the current German law. Nevertheless, the Kohl administration dismissed the Parliamentary Proposal following the argumentation of the governmental part of the Commission's Recommendation "Drucksache 12/8468" (Bonn Parliament records, September 8th, 1994) that

(page 3) "according to the experience of the Federal Office of Finance, the (bribe) costs are typically considered as "useful levies" in the calculation of the contract fee by the contractor. Hence, it doesn't result in any reduction of domestic (company) earnings. Rather, the foreign contractor or foreign government bears these costs."

Moreover, according to the Kohl administration these practices were legitimate

(page 3) "since bribes in other industrialized nations... are recognized as operating expenses under substantially the same conditions (as in Germany)... it can not be excluded that a prohibition of tax deduction would disadvantage German export companies, hence even threat jobs."

However, the government neglected the opposition leader's assessment (part of the PFC's Recommendation) that

(page 6) "...the government report also clearly proves that in most foreign industrial countries kickbacks and bribe money can be tax deducted only to a much lesser extent than in the Federal Republic of Germany. E.g. in payments abroad recipients must be specified in almost all countries."

Two years later another Parliamentary Proposal on "Measures against corruption" was submitted: "Drucksache 13/0617" (Bonn Parliament records, February 17th, 1995). Again the government was blamed that

(page 5)"...the tax law still allows that bribes and kickbacks are completely legally tax deductible... (page 2) The federal government hasn't just not prevented corruption in international commerce, but even fostered it by tax deductibility and uncontrolled export promotion. The German Government undermines all international initiatives against corruption, as especially the recommendations of the OECD Council."

On December 9th, 2003, Germany signed under serious concerns the United Nations Convention against Corruption (UNCAC). But unlike Austria and Switzerland Bonn did not ratify the Convention immediately. After 11 years of retardation Germany finally enacted a respective law against corruption of Members of Parliament on December 12th, 2014, as the 173rd country (of 174). Transparency International stated:

"German ratification was delayed by parliamentarians’ reluctance to relinquish rights under legislation on bribery of members of parliament. Under the convention, parliamentarians fall under the category of public officials. Germany has been the only EU country yet to ratify since 29 November 2013, when the Czech Republic ratified."