Tax Compliance – assessing supplier status in public procurement

You may remember (if you’re a public procurement junkie) the announcement a while back that the public procurement process would be used to drive better tax compliance from firms who wanted to win central government contracts. Note this is just central government we’re talking about here. A guidance note was issued back in March, but a new Procurement Policy Note has now appeared clarifying how the process should operate.

Departments must include key questions in their PQQs or ITT (in the case of the Open procedure). A supplier must state whether:

  • its tax affairs have given rise to a criminal conviction for tax related offences which is unspent, or to a penalty for civil fraud or evasion; and/or
  • any of its tax returns submitted on or after 1 October 2012 has been found to be incorrect as a result of:

           HMRC successfully challenging it under the new General Anti-Abuse Rule (GAAR) (contained in Part 5 of the Finance Act 2013) or the “Halifax” abuse principle; or

           a tax authority in a jurisdiction in which the supplier is established successfully challenging it under any tax rules or legislation in any jurisdiction that have an effect equivalent or similar to the GAAR or the “Halifax” abuse principle; or

           the failure of an avoidance scheme which the supplier was involved in and which was, or should have been, notified under the Disclosure of Tax Avoidance Scheme (DOTAS) or any equivalent or similar regime in any jurisdiction. This only applies in relation to a DOTAS scheme which a supplier has used in relation to its own tax return.

 This will apply to all contracts worth £5M or more. But the contracting body can use some discretion.

“Where a supplier declares that it has had an Occasion Of Non Compliance (“OONC”), the contracting department can, at its discretion, decide whether or not to exclude that supplier from the procurement process. In reaching a judgement, Departments may take into account any mitigating factors provided as part of the supplier’s response; for example measures that the supplier has implemented to ensure future tax compliance. However, it should be noted that if an OONC also falls within the mandatory exclusion criteria under the (EU) Regulations then the Authority will have no discretion”.

The responses should be used on a ‘pass/fail’ basis  in the evaluation process; not scored, in other words. And there is no obligation on the buyer to check what is being said – this is a totally self-certified process (which does beg the question – what happens if a supplier lies?)

I suspect this is more about being seen to do the right things to encourage tax compliance, rather than any expectation that many firms will be caught out here. But if it makes a few companies think twice about using ‘interesting’ tax schemes, then it will have been worthwhile.  It’s one more thing for public procurement to worry about, but in the vast majority of cases it will be a simple box-ticking process, so probably not something to lose sleep over.

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