Procurement Policy Note: Measures to Promote Tax Compliance

Question 1

Accepted Answer

Action Note 03/14

06 February 2014

Issue

1. Government announced a new policy in the March 2013 budget. This was on the use of the procurement process to promote tax compliance. The new policy applies from 1 April 2013 to all central government contracts over £5 million. Suppliers bidding for these government contracts must self-certify their tax compliance.

2. This Action Note replaces Action Note 06/13 dated 25 July 2013.

This Action Note does the following:

sets out the scope of the new policy
advises on how to take account of the new policy in procurement documents
gives further guidance at Annex A on how departments should assess suppliers’ responses and the inclusion of new clauses in contract terms

This Action Note provides more clarification on the use of mandatory exclusion criteria. This includes updates to:

paragraphs 4, 8, 9 and 15 (below)
section B, Section D and Section C of Annex A

These have been updated with drafting for inclusion on both procurement documents and contracts.

Action

3. From 1 April 2013, departments must include relevant questions to suppliers in their procurement documents at the selection stage. For example: in the Pre-Qualification Questionnaire (PQQ) or the Invitation to Tender documents.

Departments must include relevant questions in the Invitation to Tender documents in the case of the Open procedure only.

This should be the case for all procurements which have or are likely to have a value of £5 million or over.

With effect from the date of this Action Note, departments must include the amended questions as set out in Paragraph 4 below and in Annex A , Section B.

4. The questions are set out in Annex A.

From 1 April 2013 onwards a supplier must state whether any of its tax returns submitted on or after 1 October 2012:

has given rise to a criminal conviction for tax related offences which is unspent, or to a civil penalty for fraud or evasion
has been found to be incorrect as a result of:

HMRC challenging it under the new General Anti-Abuse Rule (GAAR) contained in Part 5 of the Finance Act 2013, or the “Halifax” abuse principle
a tax authority in a jurisdiction in which the supplier is established as challenging it under any tax rules or legislation that have an effect on equivalent or similar to the GAAR or the ‘Halifax” abuse principle
the failure of an avoidance scheme which the supplier was involved in and which was, or should have been, notified under the Disclosure of Tax Avoidance Scheme (DOTAS) or any equivalent or similar regime in any jurisdiction

This only applies in relation to a DOTAS scheme which a supplier has used in relation to its own tax return.

5. For the purposes of this policy, the date on which a return is “submitted” is when it is first submitted to HMRC. Any amendments or re-submissions do not change that.

For example, if you submit a return on 30 September 2012, then make changes and re-submit after 1 October 2012, that return would still count as being submit before 1 October. This means this would be outside of the effect of this policy.

6. HMRC or an equal tax authority, will not consider to have “successfully challenged” a supplier until all appeal avenues are completed.

7. This policy will apply to all suppliers as defined in the Public Contracts Regulations 2006 and the Defence and Security Public Contracts Regulations 2011 bidding for central government contracts of £5 million or more.

We give further details of how the policy applies to different types of suppliers in Annex A.

Suppliers are not needed to certify on behalf of

any subcontractor
any other members of the supply chain
any member of their group

8. Where a supplier declares that it has had an Occasion Of Non Compliance (OONC), the contracting department can decide whether to exclude that supplier from the procurement process.

Departments may take into account any mitigating factors given as part of the supplier’s response. For example, measures that the supplier has carried out to make sure they meet future tax compliance.

But, it should be noted that if an OONC falls within mandatory exclusion criteria under the Regulations then the authority will have no discretion.

9. Further guidance on the assessment of suppliers’ responses to the questions is set out in Annex A

10. Departments must make sure that for any procurements where the policy applies, the terms and conditions of the contract contains clauses which will allow them to end the contract if a supplier has had an OONC.

There should also be clauses placing an obligation on the supplier to keep the department notified of changes in relation to its tax compliance.

Annex A provides further guidance along with some standard drafting.

Dissemination and Scope

11. Please share this PPN within your organisation and its:

executive agencies
non departmental public bodies
all contracting authorities for which you are responsible

Bring it to the attention of those with a buying role.

12. It replaces:

Action Note 06/13 dated 25 July 2013
Information Note 03/13 (which consulted on the measures)
Action Note 04/13 (which gave advance notification of the policy)

Other contracting authorities (for example, in local government and the wider public sector) may choose to apply the measures set out in this PPN.

Contact

13. Questions about this PPN should be directed to the Cabinet Office Domestic Policy Team. Please send your email to domestic-policy-queries@cabinet office.gov.uk.

Background

14. The Chief Secretary to the Treasury announced in September 2012 that HM Revenues & Customs (HMRC) and the Cabinet Office were looking into how the government can use the procurement process to deter the minority of suppliers and individuals that do so from evading tax.

15. The Autumn Statement announced that HMRC and Cabinet Office would consult on the use of the procumrent process to deter tax avoidance and evasion. This was taken with a view to new arrangements coming into effect from 1 April 2013.

16. The government announced in the March 2013 Budget a new policy requiring potential suppliers to confirm their tax compliance as part of the procurement process. Initial guidance on carrying out the new policy was issued in Action Note 04/13 on 28 March 2013.

17. Under the regulations an authority can disqualify a supplier from taking part in a procurement process. This is if the supplier has not fulfilled its tax obligations under the UK law or the relevant state in which the economic operator is established.

18. Disclosure of tax avoidance schemes (DOTAS) requires promoters and taxpayers to disclose to HMRC the marketing or the use of certain tax avoidance arrangements.

A failed DOTAS scheme is one which has shown either through litigation or through settlement not to achieve the tax result that it set out to get.

For further information see the definition in paragraph 24 of Annex A.

Question 2

Annex A: guidance on tax compliance procurement measures

Accepted Answer

This Annex provides more guidance on implementation of the tax compliance policy. It covers the following:

Scope of Application: when the policy applies
Selection Stage Questions: what must be included in procurement documentation
Selection Stage Evaluation: how to deal with suppliers’ responses to the tax questions
Contract Terms & Conditions: the standard clauses to be included

Scope of application

1. This policy applies to all suppliers (all ‘economic operators’ as defined by the regulations) bidding for all central government contracts. This includes framework agreements. of £5 million or more. For further guidance see paragraph 5.

It applies equally to suppliers which are:

a body corporate or association, or an individual
a joint venture or consortium, where the self-certification must cover all members of the joint venture or consortium
a partnership, limited partnership or limited-liability partnership (LLP), in which case the self-certification must cover that partnership, limited partnership or LLP, but not the individual members
a member of a group although in that case the self-certification does not cover other group companies, whether UK or non UK based

2. The policy applies:

to all HMRC administered taxes and foreign equivalents;
to an OONC occurring in a period of 6 years before the self-certification date, but only where the OONC occurs on or after 1 April 2013 and is in respect of tax return submitted on or after 1 October 2012
to all central government departments including their executive agencies and non departmental public bodies (this policy will refer to these organisations as ‘authorities’ or the ‘authority’)
other contracting authorities (for example in local government and the wider public sector) may choose to apply it to their procurements where these are over £5m in value.

3. The £5m threshold has been set to avoid adding an administrative strain to lower value procurements and small businesses

4. the policy does not apply to call off contracts made according to existing framework agreements (such as framework contracts awarded before 1 April 2013). It does not apply to extensions made to existing contracts awarded before 1 April 2013.

5. the policy applies to multi supplier framework agreements only, where it is anticipated that the value of any individual call-off orders or agreements for goods and services will be £5 million or greater.

Selection stage questions

6. The European Union (EU) procurement directive and the Regulations allow procuring authorities to apply tax and propriety based criteria at the selection stage. They can ask a potential supplier where it has fulfilled all its obligations relating to the payment of taxes.

7. For all qualifying procurements, you must answer the following questions in the procurement documents at the selection stage:

Question 1: The supplier must state whether, from 1 April 2013 onwards, any of its tax returns submitted on or after 1 October 2012 has:

1.1 given rise to a criminal conviction for tax related offences which is unspent, or to a civil penalty for fraud or evasion

1.2 has been found to be incorrect as a result of:

HMRC successfully challenging it under the General Anti-Abuse Rule (GAAR) or the “Halifax” abuse principle
a tax authority in a jurisdiction in which the supplier is established successfully challenging it under any tax rules or legislation that have an effect equivalent or similar to the GAAR or the “Halifax” abuse principle
the failure of an avoidance scheme which the supplier was involved in and which was, or should have been, notified under the Disclosure of Tax Avoidance Scheme (DOTAS) or any equivalent or similar regime in a jurisdiction in which the supplier is established

If you answer ‘yes’ to either 1.1 or 1.2 above, you may give details of any mitigating factors that you consider relevant and that you wish the authority to take into consideration.

This could include:

corrective action the supplier has undertaken
planned corrective actions the supplier will take
changes in personnel or ownership since the OONC
changes in financial, accounting, audit or management procedures since the OONC

To consider any factors raised by the supplier, procuring authorities will find it helpful to have the following information:

a brief description of the situation, the tax it applies to and the type of ‘non-compliance’ (for example, whether HMRC or the foreign tax authority has challenged in accordance to the GAAR)
where the OONC relates to a DOTAS and the number of the relevant scheme
the date of the original ‘non-compliance’ and the date of any judgement against the supplier, or date when the return was amended
the level of any penalty or criminal conviction applied

Procurement Policy Note: Measures to Promote Tax Compliance