New rules use government buying power against tax avoidance

New rules that will allow government departments to ban companies and individuals which take part in failed tax avoidance schemes from being awarded Government contracts, have been unveiled by Chief Secretary to the Treasury, Danny Alexander and Minister for the Cabinet Office, Francis Maude.

The rules, which are proposed to come into effect on 1 April 2013, are outlined in draft guidance published for consultation by the Government. They will require potential suppliers to notify contracting departments of their recent tax compliance history, and specifically to tell the department if any tax return has recently been found to be incorrect as a result of:

• HMRC 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.

Suppliers will also be required 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 any bidder meeting these criteria from the procurement process.

Following their introduction, the rules will also enable departments to include a new clause in contracts that allows them to terminate an agreement if a supplier subsequently breaches the new tax compliance obligations. The supplier will be legally obliged to tell the contracting department if their status changes after the award of the contract.

The rules have been designed to accommodate EU rules. The EU procurement directive and Public Contracts Regulations 2006 allow procuring authorities to apply tax and propriety based criteria at the selection stage. In particular, a potential contractor can be asked whether it has fulfilled all its obligations relating to the payment of taxes.

Danny Alexander says 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.”