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Bidding for public sector deals: Guidelines on tax avoidance.

Byline: Ian Hyde, tax partner, Pinsent Masons

From April 1, 2013 under new rules being introduced bidders for Government contracts will need to certify that they are tax compliant. Failure to satisfy the new measure will bar the company from winning the contract. This measure is an attempt by the Government to use their purchasing power to stop legal but "unacceptable" tax planning.

All central government above-threshold contracts advertised from April 1, 2013 will be affected. Other public bodies, such as Local Authorities, will also be encouraged to look at the practicality of applying this measure.

The rules are still subject to consultation but bidders need to consider their position now so that they will be ready for the new rules.

The new rules 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 arises where the bidder has accepted, or a Court has determined, that additional tax is payable in circumstances where certain specific anti-avoidance rules apply. Tax charges arising for other reasons will be ignored and so understanding why additional tax was paid is very important.

Bidders who cannot give a clear certificate will need to to provide an "explanatory statement" setting out any mitigating factors - for example, the bidder no longer engages in tax planning. The procuring authority has discretion to pass or fail the bidder according to that statement but will need to comply with procurement and public law when exercising this discretion.

The new rules are likely to apply not only to the bidder but also any group company substantially involved in the bid. Sub-contractors will also be affected by these rules where they will performing a "significant part" of a project. Where a bidder is subject to any non UK tax regimes then they will need to certify whether it has fallen foul of equivalent antiavoidance measures in other countries. Furthermore, future contracts will include wording so that any non-compliance after a contract has been won can lead to termination of the contract.

Planning for the future Both bidders and procuring authorities will need to establish very quickly how they are going to manage these new rules.

Procuring authorities will need to establish how to review bids which contain detailed tax statements - they will not have access to HMRC officials to decide how to interpret.

For bidders, there will be very little time in the procurement process to investigate 10 years of tax history. Bidders should therefore review in advance past tax records to check whether they are caught by the new rules. This may require detailed analysis of the reasons for tax settlements.

If the bidder establishes that HMRC has succeeded in an anti-avoidance challenge, it will need to draft an explanatory statement. It is likely a large number of bidders will be in this position.

A changed landscape These new rules may be subject to change in the consultation process but the political will to try and stop tax planning means that they are unlikely to be shelved. Bidders and procuring authorities will need to get acclimatized to complex questions about tax compliance being part of the bid process.


Ian Hyde, tax partner at Pinsent Masons, believes bidders for public sector contracts need to consider their position now
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Mar 21, 2013
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