Today the Cabinet Office has published a Procurement Policy Note (PPN) laying out changes to the procurement process intended to encourage suppliers to “become and remain” tax compliant. The PPN is being circulated and the Cabinet Office is asking for comments by 22nd February with the intention that the policy will be applicable for all contracts advertised from 1st April 2013.
Full details can be found in the note. Essentially though, during the procurement process for all ‘above threshold’ OJEU contracts in central government (note – this excludes local government), suppliers will be posed a “pass/fail” question in the standard Pre-Qualification Questionnaire, which will ask them to self-certify whether they have had any occasions of “non-compliance”. Depending on the answer (and there are some ‘mitigating factors’ outlined), the supplier could then be excluded from the procurement process based on their response. 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.
There has been much in the media about the Government’s stance on corporate tax avoidance. And this Procurement Policy relates to all companies not just ICT companies. However, the FT reported earlier in the week that the Public Accounts Committee is considering calling in some of the IT sector’s biggest IT companies to investigate the range of methods they use to keep taxes low. It should be stressed though, there is a big difference between tax avoidance and tax evasion; the former being legal... and we would argue that shareholders expect companies to keep their tax payments as low as possible within legal limits. As such it appears (though we aren’t tax experts) that the new Procurement Policy is only aimed at companies that have been proven to have unlawfully evaded paying taxes i.e. the tax avoidance has been shown to be against certain rules. To go any further than that would surely break EU procurement rules? Even with this approach though, our fear is that Government risks facing some costly legal battles if it tries to block suppliers from participating in procurements. The most positive outcome may be that simply asking the question starts to alter company behaviours.