Clarity on public sector contracts required

Government plans to introduce new rules on tax compliance for companies tendering for public contracts have come under fire for lacking clarity and potentially discriminating unfairly against UK suppliers, reports Harris & Co accountancy services.

The rules will only apply to new contracts offered for tender from 1 April 2013, but the current proposals suggest that historical compliance failures will be taken into account.

Mary Monfries, head of tax policy and regulation at PwC, said:

‘"We are concerned that the new procurement rules are to apply retrospectively, with a ten-year period proposed. The tax environment has changed considerably over the last ten years and the focus should be on current and future behaviour.’

Bill Dodwell, head of tax policy at Deloitte, said:

‘The problem area for some will be activities in the past, when perhaps a different environment existed. It may also be challenging for the government to exercise its judgment where there has been an occasion of non-compliance.’

Jason Collins, head of tax at Pinsent Masons pointed out that the proposals also say ‘mitigating’ factors should allow some companies to be exempted from the ban, but do not define the ‘mitigating’ circumstances. He said the proposals ‘give too much influence to bureaucrats".

‘Without clarification, these proposals will act as a deterrent to negotiation and settlement with HMRC," said Collins. "A large corporate in a dispute with HMRC may well choose to challenge HMRC’s interpretation of tax rules, rather than settle and potentially face a procurement ban.’

There are also concerns that the new rules may unfairly discriminate against UK suppliers who are required to comply with a tougher tax regime than foreign-based competitors.

Monfries said:

‘Although the government says it will look at equivalent foreign tax rules when reviewing overseas suppliers, the rules are not directly comparable. Long standing UK based companies who have responded to the public concerns could be put at a disadvantage against overseas new entrants.’