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Procurement and Tax

Volume 558: debated on Thursday 14 February 2013

The Minister for the Cabinet Office and I are today making available for comment a draft of new rules that will allow Government Departments to ban companies and individuals that take part in failed tax avoidance schemes from being awarded Government contracts. The discussion document and draft guidance have been deposited in the Libraries of both Houses and are available through the HMRC website.

The rules, which are intended to come into effect on 1 April 2013, are outlined in draft guidance published for consultation by the Government.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 if any tax return has recently been found to be incorrect as a result of, among other factors:

HMRC successfully challenging it, including under any targeted anti-avoidance rule (TAAR), 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 contractually obliged to tell the contracting Department if their status changes after the award of the contract.

The rules have been designed to operate within the EU procurement directive and Public Contracts Regulations 2006, which 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.

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