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Autumn statement: Tax avoiders may be denied government contracts

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Private sector bidders for government contracts need urgently to review their tax affairs, and potentially those of senior management, a leading tax expert has told Tax Journal, after the government indicated that it will use its procurement process to deter ‘tax avoidance and evasion’.

The Cabinet Office and HMRC are set to consult on the move, and on a proposed definition of ‘key concepts’, with a view to new arrangements coming to effect from 1 April 2013.

‘There is nothing that prevents the very small minority of firms that don’t play by the rules from winning government contracts,’ Danny Alexander, the chief secretary to the Treasury, told the Liberal Democrat conference in September.

‘That is not right. That is not fair. And I am determined that it comes to an end. If you want to work for us, you should play by our rules. Taxpayers’ money should not be funding tax dodgers.’

Chris Morgan, head of tax policy at KPMG in the UK, said the announcement – made on page 72 of the autumn statement – implied that companies that the government sees as ‘playing by the rules’ on tax have a much higher chance of being awarded government contracts. ‘Those tendering for government business will invariably have a tougher hurdle to pass in respect of demonstrating their tax compliance and these proposals may result in a more formal certification process for all organisations involved with government entities.’

The announcement was ‘further evidence of the ever increasing trend towards greater tax transparency within the corporate environment’, Morgan added.

James Bullock, head of litigation and compliance group at Pinsent Masons, said the assumption must be that the tax compliance record of private sector bidders will become a relevant factor in the award of government contracts.

‘Corporates wishing to bid for such contracts need urgently to be looking at their tax affairs – and potentially those of their senior management as well,' he wrote in this week’s issue of Tax Journal.

‘This is a fascinating and innovative development aimed at “changing behaviours” in the way that has previously been applied to issues such as diversity, Bribery Act and CSR policies. It will affect (amongst others) construction companies looking to tender for major infrastructure projects (such as the proposed Northern Line extension and HS2) as well as those looking to secure IT procurement projects with public bodies and a host of other public-private contracts.’

As Tax Journal reported yesterday, the chairman of the Commons public accounts committee has told the BBC that accountancy firms ‘supporting anybody in trying to avoid tax in an aggressive way’ should be denied access to government contracts. Margaret Hodge told the Today programme that the big four accountancy firms ‘have a duty to lead by example’.

All four firms stressed ‘their global role and their requirement to respond to the needs of their clients, which often operate in many countries across the world’, Today reported. Mary Monfries, head of tax policy at PwC, said: ‘We help companies that are looking at tax as a cost but we have some clear principles about the way we work.’

Ernst & Young told Tax Journal that its clients ‘seek our advice on a wide range of issues, including the most appropriate tax planning that is in compliance with the applicable laws and rules’.