Companies found guilty of aggressive tax avoidance will be banned from bidding for major government contracts, under new rules published by the Treasury on Thursday.
Danny Alexander, the Treasury chief secretary, released a statement on Thursday, saying all firms and individuals bidding for contracts with the government will have to declare whether their tax returns have been rejected in the past because of involvement in a tax avoidance scheme.
An exact time limit on how far back the tax return rejections would have to be declared has not been decided, but the Treasury has advised that 10 years was a good benchmark.
It would also take into account the fact that tax cases can take a number of years to be resolved in court, and that there are existing regulatory, statutory and other time limits for record keeping, including the Companies Act 2006, which currently has six years as a cut off.
A clause in contracts, allowing departments to terminate the agreement if they are later found to have breached tax compliance obligations, will also be forced on companies, as the government attempts to align itself with the public ire of companies who use legal means to avoid paying their full tax obligations.
In a written statement to Parliament, Alexander described the changes - due to come into effect on April 1 - as "another significant tool (which) will provide a framework to enable government departments to say no to firms bidding for Government contracts where they have been involved in failed tax avoidance".
To ensure that UK suppliers are not unfairly disadvantaged, suppliers with tax obligations in foreign jurisdictions will also be required to certify that there has not been an 'occasion of non compliance' in relation to the equivalent foreign tax rules.
Some of the UK's most well-known consumer brands, including Starbucks, Amazon and Google, have also been criticised over their tax affairs.
But other sectors have employed similar tactics - including water companies, infrastructure suppliers and IT contractors.
Alexander, who has been working on the issue with Francis Maude, the Cabinet Office minister, since the summer, told the FT there was no suggestion any of the above companies would fall foul of the new rules, but said: "It is clear there has been an approach to tax which I don't consider to be acceptable, and I think most importantly, the British public don’t consider to be acceptable."
"If you work for the government, whether you’re an individual employee or a company that has got a contract with the government, you need to be behaving properly with regard to tax rules."
There is an option for any government departments, which discover they are already employing a tax-dodging company - the report says:
"A range of remedies is already available where a supplier breaches the terms of a contract. Standard remedies will be available to departments within contracts, enabling up to and including termination of contract in circumstances where suppliers either fail to disclose an occasion of non-compliance at the outset, or where such an occasion occurs during the lifetime of the contract."
The public accounts committee confirmed earlier this week that it is considering calling in some of the IT sector's biggest companies, after the FT found nine government suppliers using a range of methods to keep taxes low, including recording UK sales in low-tax jurisdictions.
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