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Tax Compliance - A Procurement Requirement
Trowers Public Insight

Tax Compliance - A Procurement Requirement

With the media taking an increasing interest in the tax behaviour of some of the nation’s largest companies, a recent Cabinet Office policy note sets out the government’s latest position in bringing big business into line through the procurement regime.

On 7 February 2014, the Cabinet Office published a revised version of its Procurement Policy Note (Action Note 03/14) providing guidance on the government's policy on the use of the procurement process to promote tax compliance.

In effect since 1 April 2013, the policy requires suppliers bidding for central government contracts worth more than £5million to self-certify their tax compliance. Local Authorities and the wider public sector may choose to apply the measures in their large procurements as well.

The latest policy note builds on Action Note 06/13, published in July 2013, which prescribed that suppliers must state:

  • whether their tax affairs have given rise to a criminal conviction or to a penalty for civil fraud or evasion
  • whether any of their tax returns submitted on or after 1 October 2012 have been found to be incorrect as a result of the failure of an avoidance scheme or following challenge under the General Anti-Abuse Rule

Where a supplier declares that it has had an Occasion Of Non Compliance (“OONC”), the relevant government department may exclude that supplier from the procurement process.

In addition, contracts for such procurements must require the supplier to update the department with any changes in its tax compliance. There must also be provisions allowing the department to end the contract if a supplier becomes non-compliant.

The recent update:

  • clarifies that the exclusion criteria relates only to tax returns submitted on or after 1 October 2012 and applies from 1 April 2013 (and not the suppliers' tax affairs generally)
  • clarifies that if any of the mandatory exclusion criteria contained in procurement regulations apply, the government department must exclude the supplier from the procurement process
  • clarifies more precisely the scope of an OONC with updated drafting for inclusion in both tender documents and contracts.

The policy note gives contracting authorities the option to apply the above measures in their procurements. The updated guidance provides a useful tool for the public sector to promote tax compliance. With the tax compliance of large companies currently the focus of both public and government attention, this is a piece of guidance that contracting authorities would be well advised to use.

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