Ministers issue plans for using procurement process to tackle tax avoidance

The Treasury and the Cabinet Office have published draft rules that would allow Whitehall departments to ban companies and individuals who have taken part in failed tax avoidance schemes.

Under the rules, which are subject to a short consultation, potential suppliers will be required to tell contracting departments of their recent tax compliance history.

They will be required to tell a department if any tax return has "been found to be incorrect as a result of:

  • HM Revenue & Customs successfully challenging it, including under the new General Anti-Abuse Rule (GAAR); or
  • a failed avoidance scheme which the supplier was involved in and which was, or should have been, notified under the Disclosure of Tax Avoidance Scheme (DOTAS) rules."

The rules will also require suppliers to disclose if they have been convicted for tax related offences or have been subject to a penalty for civil fraud or evasion.

Departments will be able to disqualify bidders from the procurement process as well as introduce clauses in contracts allowing for termination of an agreement if a supplier goes on to breach the new obligations.

Suppliers will be under a legal obligation to tell a contracting department of a change in their status after the award of a contract.

Danny Alexander, Chief Secretary to the Treasury, said: “The Government is clear that aggressive tax avoidance is totally unacceptable. That’s why we are closing loopholes, bringing in a new General Anti-Abuse rule, and investing hundreds of millions of pounds in additional funding to help HMRC clamp down. 

“These new rules are another significant tool as they will enable Government departments to say no to firms bidding for Government contracts where they have been involved in failed tax avoidance.”



HMRC’s draft discussion document and draft guidance can be viewed here.

The Cabinet Office has issued a procurement policy information note and consultation providing more detail on how the procurement process will be used to deter tax avoidance and evasion.

The note says this will be achieved “through a process of self-certification at selection stage whereby suppliers will be required to declare specified serious breaches of tax obligations”.

Annex A to the note contains guidance to contracting authorities. From 1 April, during the selection stage of all central government above-threshold EU procurements, a supplier will be required to confirm that within a specified time period, it has had no ‘occasions of non-compliance’.

The annex says a new ‘pass/fail’ question will be developed and will be incorporated into the standard core pre-qualification questionnaire. Procurers will not be required to supplement this question with additional questions or information, it adds.

It adds that draft contract clauses will also be provided in the final Procurement Policy Note issued on this subject, for inclusion in all standard contracts.

“This will insure departments have sufficient remedies, up to and including termination of the contract, to deal with any occasion of non-compliance through contract conditions if it occurs during the life of contract or if a supplier is found to have fraudulently misrepresented their self-certification status during the procurement process,” the note says.

“It will also oblige suppliers to notify departments of a change to tax compliance status during the life of a contract.”

The annex says that where a supplier has presented an improvement plan concerning their tax compliance as part of their self-certification response, departments may use this to monitor a supplier’s performance during the life of the contract.

The note identifies four different ways in which suppliers might respond to the new question on tax compliance, and how procurers should treat those responses.

In a second annex to the note, the Cabinet Office provides guidance to suppliers on the proposed approach.

Cabinet Office Minister Francis Maude said:
"[It] is only right we ensure that only companies which are meeting their tax obligations can win government contracts…. These new rules provide a framework that allows departments to promote tax compliance through the bidding process.”

A copy of the policy information note can be downloaded here. The consultation lasts until 22 February, with a view to the new policy applying to contracts advertised after 1 April 2013.

The note insists that the planned approach was intended to be as light touch as possible, “so as to fit with wider work on streamlining procurement processes”.