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(Mar 02, 2008) The Tel Aviv Yafo district court rejected an appeal against a decision by the Income Tax Authority of Israel not to recognize as a legitimate expense bribes paid to foreign officials to facilitate a business transaction in a foreign country. The appellant, an Israeli company, claimed that the amounts paid as the bribes should be recognized as an expenditure incurred in order to obtain taxable income.

In rejecting the appeal, the court held that recognizing payment of bribes as an expense for tax purposes contradicts the moral base that authorizes the legislator to impose tax. Permitting bribes as expenditures establishes legitimacy for corrupted and corrupting regimes that harm the economic relationship of countries in the world, even if done outside of Israel. The court rejected the claim that by not allowing the deductions, the company was subjected to discrimination as compared with foreign beneficiaries. The court held that if bribes could be deducted, taxpayers would in effect become party to the activities and that a tax system that aspires to be enlightened cannot transform its citizens into partners in such acts, even if the latter do not constitute an offense if conducted outside the state's borders. (Income Tax Appeal 1015/03 A Company Ltd. v. Income Tax Officer Natania, Nevo Legal Database (by subscription, in Hebrew), (last visited Feb. 14, 2008.)

Author: Ruth Levush More by this author
Topic: Taxation More on this topic
Jurisdiction: Israel More about this jurisdiction

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Last updated: 03/02/2008