Tax-compliance rule will change the way major public procurement works

Out-Law Analysis | 11 Mar 2013 | 1:03 pm | 1 min. read

FOCUS: Companies bidding for public sector work, and public sector bodies running major tenders, will have to change the way they approach the tender process from as early as 1 April this year, under plans published by the Government. 

The proposed new rules would allow public bodies to exclude companies who have been involved in failed tax avoidance schemes from bids for public work. The rules would affect all central Government deals tendered under the EU public procurement rules (OJEU). The current OJEU threshold for public works contracts is £4,348,350.

Companies bidding for work must be aware of the new rules because failure to abide by them will lead to them being excluded from a bid.

The new rules say that bidders will be required to self-certify whether they have had any "occasions of non-compliance" during the previous 10 years. An occasion of non-compliance means that the bidder has accepted, or a court has ruled, that additional tax is payable in circumstances where anti-avoidance rules have been engaged. The date on which the arrangements were put in place is irrelevant.

Any bidders who have had "occasions of non-compliance" will need to provide an "explanatory statement" setting out any mitigating factors – for example, that there has been a break from past behaviour and the bidder no longer engages in tax planning which might be affected by anti-avoidance measures. The body awarding the contract has discretion to pass or fail the bidder according to that statement.

Any occasion of non-compliance occurring after a contract has been won, or the discovery of any misleading statements given by the bidder during the selection process, can lead to termination of the contract. 

The measure is designed to encourage compliance with the Government’s view of tax law.

Similar rules will apply to non-UK tax avoidance, although the scope and practical application remains unclear.

The ability of public authorities to exclude companies from bids if they do not declare relevant information means that general counsel, bid teams in-house tax departments should all make themselves familiar with the rules.

The rules could be applied beyond central Government. Other public sector bodies are allowed to implement the policy but are not required to. This means that local authorities and housing associations could apply the rules. Any body adopting the policy will need to make sure that they have the necessary expertise to assess bidders' responses on their tax compliance status.

Confirmation of the policy is expected at the announcement of the Government's Budget on 20 March. 

Tom Johnson and Katherine Eddon of Pinsent Masons, the law firm behind Out-Law.com