A fair tax breakthrough in procurement

By January 30, 2017News

We are delighted to report that we have made a significant breakthrough in our Sourced campaign – which urged local councils to use their purchasing power to tackle corporate tax avoidance.

Paul Monaghan, co-founding director of the Fair Tax Mark, explains all…

In November, we reported that the campaign had been wonderfully well received, with councils across the country not only debating the issue, but making substantive changes to their procurement procedures.

Everywhere from Manchester City Council through to Durham County Council and the London boroughs of Southwark and Lewisham took steps towards fair tax procurement. The volume of activity had been truly amazing, as was the political breadth of the councillors that had tabled motions, including Labour, Co-operative, Green, Liberal Democrat and Conservative elected representatives.

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Now the government has taken action to support fair tax

But now, in a major development, the UK Government has issued a new requirement on all councils in England, Wales and Northern Ireland which stipulates that they must question potential suppliers on any recent history of tax evasion and avoidance.

This brings local government procurement in line with national government guidelines, and is precisely what we were pushing for when we launched our campaign with Christian Aid back in January 2016.

The Government’s new Public Procurement Note takes the form of a revised standard Selection Questionnaire. The Questionnaire incorporates exclusion grounds against which suppliers are asked to self-declare compliance. This includes a requirement that tax returns submitted on or after 1 October 2012 should not have been found to be incorrect as a result of:

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

The new rules kick in above £173,000 for service contracts and £4 million for works contracts, and apply across England, Wales and Northern Ireland. Further details on the background to the campaign are available at Christian Aid.

But there is still much more to be done

However, as welcome as the new guidance is; it is not in itself a panacea for progressive procurement. It is not unusual for centrally mandated public procurement notes to take years to filter down, or for them to be poorly implemented. Moreover, even the most willing councils will likely need help to identify businesses that breach the exclusion grounds. It’s important that the new guidance actually bites: not just so those avoiding their societal obligations are penalised, but so that those businesses that pay their way responsibly are given due recognition.

And so, we are calling (as per the sourced model council motion) for councils to periodically report on the implementation of PPN 8/16 and the exclusion of tax evaders and avoiders from public procurement.

The Fair Tax Mark will now be looking to secure resources to help us apply such pressure in 2017 and beyond. Not least, because our work in this area is transferable to other countries. Councils in England spend a substantial £45 billion a year buying goods and services from companies, but across Europe the figure is a colossal €1.9 trillion – as covered in this recent podcast.

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We hope to provide more guidance soon, and would be delighted to hear from anyone keen to progress matters in the area of Fair Tax and public procurement.

The Fair Tax Mark’s work on the Sourced Campaign has been made possible by the generous support of the Joffe Charitable Trust. Corporate tax evasion and avoidance are having a devastating impact on the world’s poorest countries – costing in the region of $160bn a year, which is far more than they receive in aid.