Government departments will be able to ban companies, partnerships and individuals taking part in failed tax avoidance schemes from being awarded government contracts, under proposals published yesterday. HMRC invited comments by 28 February on draft guidance on the rules expected to come into force on 1 April.
‘Taxpayers’ money should not be funding tax dodgers,’ Danny Alexander told the Liberal Democrats conference last September, and last December’s autumn statement indicated that the government would use the procurement process to deter avoidance and evasion.
Both UK and foreign suppliers will be required to confirm their ‘tax compliance’ as part of the procurement process.
Alexander, chief secretary to the Treasury, said yesterday that the rules will also enable departments to terminate an agreement if a supplier subsequently breaches the new tax compliance obligation, and the supplier will be contractually obliged to tell the contracting department if their ‘status’ changes after the award of the contract.
‘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 (GAAR), and investing hundreds of millions of pounds in additional funding to help HMRC clamp down,’ he said.
‘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 discussion document states that an occasion of ‘non-compliance’ will occur if:
‘There needs to be a time limit beyond which earlier events are disregarded,’ HMRC said. ‘The current proposal is that ten years is a reasonable length of time.’
The Cabinet Office provided further details in an information note Promoting Tax Compliance and Procurement.
Challenges
Mary Monfries, head of public policy at PwC, expressed concern that the new rules would apply retrospectively.
‘The tax environment has changed considerably over the last ten years and the focus should be on current and future behaviour,’ she said. UK and foreign tax rules were not directly comparable, and long standing UK based companies that have responded to public concerns ‘could be put at a disadvantage against overseas new entrants’.
Bill Dodwell, head of tax policy at Deloitte, noted that ‘historical compliance failures’ will be considered.
‘The problem area for some will be activities in the past, when perhaps a different environment existed. It may also be challenging for the government to exercise its judgement where there has been an occasion of non-compliance,’ he said.
Jane McCormick, head of tax at KPMG in the UK, echoed PwC’s concerns regarding the application to foreign suppliers. ‘There is the potential to create an “unlevel playing field” disadvantaging British-based companies because suppliers with tax obligations in foreign jurisdictions will be required to certify that there has not been an “occasion of non-compliance” in relation to the equivalent foreign tax rules,’ she said.
‘Whether or not there has been such an occasion will clearly rest on the rules pertaining to the various territories, which are not uniform from country to country. Specifically, many countries do not have a GAAR or a DOTAS regime.’
Aaron Fairhurst, tax partner with law firm CMS Cameron McKenna, said the government was ‘attempting to increase tax revenue by promoting a culture of fiscal fear’. Even relatively small contractors will be faced with ‘impracticable demands to show they are compliant with the tax morals of the moment’, he added.
But the Financial Times quoted Charlie Elphicke, a Conservative MP who has campaigned against tax avoidance by big companies, as saying that the new rules would not go far enough.
Big four accountancy firms
A report in The Guardian noted that ‘large accountancy firms will not face blackballing on account of advice offered to clients’.
Margaret Hodge, chairman of the Commons public accounts committee, told heads of tax at Deloitte, Ernst & Young, KPMG and PwC last month: ‘You all get a not-insubstantial amount of money from the taxpayer, yet your main purpose in your tax businesses is to cut the tax that is paid to the Treasury for the common good.’
KPMG’s Jane McCormick replied: ‘Our main purpose is to help our clients calculate and pay their tax.’
John Dixon, head of tax at Ernst & Young, said: ‘We feel that we are a professional, responsible organisation that advises clients on a whole range of issues. Between us, we are one of the biggest contributors to the UK exchequer in the amount of taxes that we pay. We are experts and I think we have a valuable role to play in helping government shape their policy.’
Kevin Nicholson, head of tax at PwC told Hodge: ‘We have an equal right to go through the procurement process. If we are the right people to add value to the government, we should be chosen. We, the Treasury, HMRC and the OECD have all recognised that the role that we play makes the tax system work.’
Government departments will be able to ban companies, partnerships and individuals taking part in failed tax avoidance schemes from being awarded government contracts, under proposals published yesterday. HMRC invited comments by 28 February on draft guidance on the rules expected to come into force on 1 April.
‘Taxpayers’ money should not be funding tax dodgers,’ Danny Alexander told the Liberal Democrats conference last September, and last December’s autumn statement indicated that the government would use the procurement process to deter avoidance and evasion.
Both UK and foreign suppliers will be required to confirm their ‘tax compliance’ as part of the procurement process.
Alexander, chief secretary to the Treasury, said yesterday that the rules will also enable departments to terminate an agreement if a supplier subsequently breaches the new tax compliance obligation, and the supplier will be contractually obliged to tell the contracting department if their ‘status’ changes after the award of the contract.
‘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 (GAAR), and investing hundreds of millions of pounds in additional funding to help HMRC clamp down,’ he said.
‘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 discussion document states that an occasion of ‘non-compliance’ will occur if:
‘There needs to be a time limit beyond which earlier events are disregarded,’ HMRC said. ‘The current proposal is that ten years is a reasonable length of time.’
The Cabinet Office provided further details in an information note Promoting Tax Compliance and Procurement.
Challenges
Mary Monfries, head of public policy at PwC, expressed concern that the new rules would apply retrospectively.
‘The tax environment has changed considerably over the last ten years and the focus should be on current and future behaviour,’ she said. UK and foreign tax rules were not directly comparable, and long standing UK based companies that have responded to public concerns ‘could be put at a disadvantage against overseas new entrants’.
Bill Dodwell, head of tax policy at Deloitte, noted that ‘historical compliance failures’ will be considered.
‘The problem area for some will be activities in the past, when perhaps a different environment existed. It may also be challenging for the government to exercise its judgement where there has been an occasion of non-compliance,’ he said.
Jane McCormick, head of tax at KPMG in the UK, echoed PwC’s concerns regarding the application to foreign suppliers. ‘There is the potential to create an “unlevel playing field” disadvantaging British-based companies because suppliers with tax obligations in foreign jurisdictions will be required to certify that there has not been an “occasion of non-compliance” in relation to the equivalent foreign tax rules,’ she said.
‘Whether or not there has been such an occasion will clearly rest on the rules pertaining to the various territories, which are not uniform from country to country. Specifically, many countries do not have a GAAR or a DOTAS regime.’
Aaron Fairhurst, tax partner with law firm CMS Cameron McKenna, said the government was ‘attempting to increase tax revenue by promoting a culture of fiscal fear’. Even relatively small contractors will be faced with ‘impracticable demands to show they are compliant with the tax morals of the moment’, he added.
But the Financial Times quoted Charlie Elphicke, a Conservative MP who has campaigned against tax avoidance by big companies, as saying that the new rules would not go far enough.
Big four accountancy firms
A report in The Guardian noted that ‘large accountancy firms will not face blackballing on account of advice offered to clients’.
Margaret Hodge, chairman of the Commons public accounts committee, told heads of tax at Deloitte, Ernst & Young, KPMG and PwC last month: ‘You all get a not-insubstantial amount of money from the taxpayer, yet your main purpose in your tax businesses is to cut the tax that is paid to the Treasury for the common good.’
KPMG’s Jane McCormick replied: ‘Our main purpose is to help our clients calculate and pay their tax.’
John Dixon, head of tax at Ernst & Young, said: ‘We feel that we are a professional, responsible organisation that advises clients on a whole range of issues. Between us, we are one of the biggest contributors to the UK exchequer in the amount of taxes that we pay. We are experts and I think we have a valuable role to play in helping government shape their policy.’
Kevin Nicholson, head of tax at PwC told Hodge: ‘We have an equal right to go through the procurement process. If we are the right people to add value to the government, we should be chosen. We, the Treasury, HMRC and the OECD have all recognised that the role that we play makes the tax system work.’
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