Honduras, Indonesia, Colombia, Ecuador, Venezuela and Russia rank among the 10 most corrupt countries in the world, according to the latest listing by transparency international

Honduras, Indonesia, Colombia, Ecuador, Venezuela and Russia rank among the 10 most corrupt countries in the world, according to the latest listing by transparency international

November 01, 1998 | By Keith Martin in Washington, DC

The listing is a warning to US companies doing business in these countries to be on the lookout for payments to government officials. The US Foreign Corrupt Practices Act makes it a crime to give anything of value to a government official, political party or candidate for office in an effort to win or retain business. A US company will be held accountable for bribes that others pay on its behalf under a hindsight standard of whether the US company should have known part of its payments to a local consultant or joint venture partner would be passed along to a foreign official.

Scandanavian countries occupied the top three spots for “least corrupt.” The US did not make the 10 least corrupt. Transparency International is based in Berlin.

THE SWEDISH CROSS-BORDER LEASE MARKET shut down after a decision this summer by the Regeringsrätten, or supreme court, that denied Swedish lessors depreciation on aircraft that they had leased cross border.

Bjorn Ohde, a tax lawyer with the prestigious firm Mannheimer Swartling Advocatbyra AB, said he and others are working on draft legislation with the aim of reopening the cross-border market sometime next year. Swedish leases offered a relatively low 3 to 4% net present value benefit for lessees, but they remained popular with Asian lessees because of their simplicity and perceived lack of tax aggression. US paper company

Willamette Industries reportedly closed on a Swedish lease of paper machinery as recently as December.

Lessees under existing leases risk a possible early termination of their leases, according to Ohde, but there should be no other effect. In a typical lease, the lessor takes Swedish tax risk. In some leases, the lessor has a right to terminate the lease for increased costs.

The Japanese lease market also shut down in September. This is expected to mean more demand for US lease equity, with higher returns for US lessors.

INDIA ACKNOWLEDGED that a most-favored-nation clause in its tax treaty with Holland has the effect of reducing withholding taxes on interest, rents and royalties paid to companies in Holland to 10%.

In a related development, the Dutch finance ministry announced that it would not let Dutch companies claim credit against Dutch income taxes for the new tax India has imposed since June 1997 on distributed profits. India used to collect a withholding tax at the border on dividends paid to foreign shareholders. This tax was clearly creditable in Holland. India switched in June 1997 to a tax on distributed profits. The new tax is imposed on the Indian company paying the dividend.

OWNERS OF BUILD-OWN-TRANSFER PROJECTS IN VIETNAM will be subject to a flat 10% income tax rate, according to new regulations issued in mid-August. The projects will also qualify for a four-year tax holiday commencing in the first year a project turns a profit, and a 50% reduction in tax rate for the next four years.

POLAND IS EXPECTED TO REDUCE ITS CORPORATE TAX RATE from 36 to 32% effective January 1. At the same time, companies will no longer be able to claim a special tax deduction for 25% of an investment’s value. The business community was disappointed that proposals for a corporate tax rate in the 22 to 26% range have been set aside for now.

HUNGARIAN PRIME MINISTER Viktor Orban promised “radical” tax reform by 2000 at a breakfast in Washington in October. The corporate tax rate was recently cut in half from 36 to 18%. Orban said the social security tax level would also be chopped in half during the next four years.

ROMANIA CUT WITHHOLDING TAXES in an effort to attract foreign investment. The new rates are 15% on royalties and payments for services and 10% on interest, except that interest received on deposits in Romanian banks is exempt. The government is also expected to eliminate a 1.5% charge on the price paid for securities in Romanian companies.

Keith Martin