“Good” tax conduct needs to be an integral consideration of Government supply contracts

By June 12, 2019Blogs, News

This week, GMB Union has released research which calculates that Amazon has won £460million of public procurement contracts in the past four years. This is the same Amazon that the European Commission has recently ordered Luxembourg to recover unpaid taxes worth €250 million from, saying the country had granted Amazon’s European arm “undue tax benefit” by allowing it to shift profits to a tax-exempt shell company.

Understandably, this led Dame Margaret Hodge MP and Andrew Mitchell MP – key leaders of the All-Party Parliamentary Group on Responsible Tax – to call for the UK Government to deprive such companies of public-sector contracts unless they pay their fair share of taxes.

Robust action is certainly needed against the use contrived and artificial tax arrangements that endow the likes of Amazon with competitive advantages that no bricks-and-mortar retailer could ever hope to enjoy. Especially when one considers that public procurement constitutes a third of all public expenditure, and recent polling (that we will release during Fair Tax Week in July) has found that almost two-thirds of the public agree that the Government and local councils should consider a company’s ethics and how they pay their tax as well as value for money and quality of service provided. Moreover, soon to be released research commissioned by the Fair Tax Mark has found that 17.5% of UK public procurement over the period 2014-2019 was won by businesses with connections to a tax haven.

However, unfortunately, the EU Procurement Directive of 2014 (and its subsequent implementation in UK Public Procurement regulations) has meant that ‘poor’ tax conduct is rarely, if ever, a meaningful factor in UK public procurement (given the extremely narrow scope for consideration allowable). This is clearly unsatisfactory, and so the Fair Tax Mark is working with tax justice advocates across Europe to press for a review of the said legislation – a move that was supported by the last European Parliament in 2017.

But this doesn’t mean that nothing can be done, although we need the UK Government to bring some progressive clarity on the options available. Beginning with the Cabinet Office review of social value in central government contracts, the consultation for which closed on 10th June. As a social enterprise ourselves, we whole-heartedly welcome and applaud the Government’s efforts to ensure that procurement takes more account of social value, and the enhanced commitment to use government buying power to drive social change. But, to date, this has excluded considerations of the tax conduct of prospective suppliers.

At the Fair Tax Mark, we believe that ‘good’ tax conduct could and should be a core public procurement consideration. Not only on the grounds that it helps level the playing field for competing suppliers and bolsters the national corporate tax take, but because it enables better identification and mitigation of financial and corruption risks by contracting authorities. The addition of such considerations would help ensure that suppliers had good economic and financial standing, and aid the management of financial risk. Material considerations given the recent collapse of Carilion and Four Seasons Health Care and rumoured pending collapse of other significant public service providers – where there is emerging evidence of systematic tax avoidance.

New evaluation metrics might include:

  • Clear public disclosure of ultimate beneficial owners of suppliers (i.e., identify those with significant control, wherever they may be)
  • Suppliers providing a publicly-available tax policy that explicitly shuns tax avoidance and the artificial use of tax havens and low-tax jurisdictions – e.g., no connection to tax havens when this is not a legitimate trading activity with the purpose of serving the local community; explicitly eschews profit-shifting and commits to the declaration of profits in the place where their economic substance arises
  • The consolidated annual profit/loss of the parent company should be publicly available within the UK, together with details of associated corporation tax payments (total, current and deferred tax payments) – multinational businesses should disclose this on a country-by-country basis

It is noteworthy (and most welcome) that Ofgem are actively considering the incorporation of ‘good tax conduct’ requirements as part of the RIIO-2 Price Control Settlement for gas and electricity network companies. Other regulators would do well to follow their lead, especially where markets are essentially closed and tend towards natural monopolies.

The proposed extension of social value requirements in central government contracts offers a natural first step for ‘good tax conduct’ to permeate public procurement across the UK, and provides the UK Government with an excellent opportunity to advance both its corporate responsibility and anti-tax avoidance credentials.

Paul Monaghan, Chief Executive, Fair Tax Mark