New procurement rules allowing government departments to ban ‘tax dodgers’ from government contracts will not achieve the government’s policy aims and are potentially damaging to the UK’s competitiveness, according to the ICAEW Tax Faculty. The two-week period allowed for consultation was ‘very disappointing’, it said.
On 14 February HMRC outlined new rules to take effect from 1 April, requiring potential suppliers to self-certify their recent tax compliance history. Danny Alexander, chief secretary to the Treasury, told the Liberal Democrats conference last September that taxpayers’ money ‘should not be funding tax dodgers’.
The rules do not appear to be designed to catch aggressive tax planning by multinationals, which has prompted calls for an overhaul of the international tax system. The OECD will present an action plan to the G20 in the summer to tackle ‘[tax] base erosion and profit shifting’.
HMRC invited comments on its discussion document by 28 February. ‘The time allowed for consultation is far too short – two weeks is not long enough and it should be extended for at least a further month,’ the Faculty said after meeting HMRC, jointly with other professional bodies and business representatives, to put forward ‘key comments and concerns’.
The proposals have not been properly thought through are disproportionate, the Faculty said, stressing that ‘we support the government’s aim to reduce tax avoidance’. It called for the start date to be deferred to 1 October 2013, and for ‘occasions of non-compliance’ more than six years prior to a declaration – rather than the proposed ten years – to be ignored.
The Faculty argued that the rules should not apply retrospectively to actions before the start date. ‘We do not think it would be right even to apply the proposals to actions after 25 September 2012, the date of [Alexander’s] announcement, because the proposals in the discussion document go much wider than the statement that was made at that time,’ it said.
‘We think the primary aim of the new regime should be to reinforce and influence future behaviour rather than try and apply it to past actions. Attitudes to tax avoidance have changed considerably since then and we question whether it is right to judge the past actions of businesses by reference to the standards that would be expected of them today. We appreciate that ministers wish to reinforce a culture change but it is equally important that businesses are not now punished for past actions which might have been viewed in a different light at the time.’
The proposals could ‘perversely’ provide a competitive advantage to overseas suppliers over UK suppliers, the Faculty suggested, especially where the overseas tax regime’s rules are more relaxed. ‘This would be a totally counterproductive policy outcome.’
The Faculty’s comments echo concerns expressed by heads of tax at the big four accountancy firms, as Tax Journalreported on 15 February. Matthew Hodkin, a tax partner at lawyers Norton Rose, noted last week the government ‘could not continue to be put in a position where large corporations were seen to be getting away with tax avoidance and yet continuing to win large government contracts’.
Writing in last week’s issue of Tax Journal, Hodkin said it was ironic that the rules outlined by HMRC would not catch ‘the transfer pricing arrangements of various US-headquartered groups operating in the UK’ which have the subject of recent scrutiny.
New procurement rules allowing government departments to ban ‘tax dodgers’ from government contracts will not achieve the government’s policy aims and are potentially damaging to the UK’s competitiveness, according to the ICAEW Tax Faculty. The two-week period allowed for consultation was ‘very disappointing’, it said.
On 14 February HMRC outlined new rules to take effect from 1 April, requiring potential suppliers to self-certify their recent tax compliance history. Danny Alexander, chief secretary to the Treasury, told the Liberal Democrats conference last September that taxpayers’ money ‘should not be funding tax dodgers’.
The rules do not appear to be designed to catch aggressive tax planning by multinationals, which has prompted calls for an overhaul of the international tax system. The OECD will present an action plan to the G20 in the summer to tackle ‘[tax] base erosion and profit shifting’.
HMRC invited comments on its discussion document by 28 February. ‘The time allowed for consultation is far too short – two weeks is not long enough and it should be extended for at least a further month,’ the Faculty said after meeting HMRC, jointly with other professional bodies and business representatives, to put forward ‘key comments and concerns’.
The proposals have not been properly thought through are disproportionate, the Faculty said, stressing that ‘we support the government’s aim to reduce tax avoidance’. It called for the start date to be deferred to 1 October 2013, and for ‘occasions of non-compliance’ more than six years prior to a declaration – rather than the proposed ten years – to be ignored.
The Faculty argued that the rules should not apply retrospectively to actions before the start date. ‘We do not think it would be right even to apply the proposals to actions after 25 September 2012, the date of [Alexander’s] announcement, because the proposals in the discussion document go much wider than the statement that was made at that time,’ it said.
‘We think the primary aim of the new regime should be to reinforce and influence future behaviour rather than try and apply it to past actions. Attitudes to tax avoidance have changed considerably since then and we question whether it is right to judge the past actions of businesses by reference to the standards that would be expected of them today. We appreciate that ministers wish to reinforce a culture change but it is equally important that businesses are not now punished for past actions which might have been viewed in a different light at the time.’
The proposals could ‘perversely’ provide a competitive advantage to overseas suppliers over UK suppliers, the Faculty suggested, especially where the overseas tax regime’s rules are more relaxed. ‘This would be a totally counterproductive policy outcome.’
The Faculty’s comments echo concerns expressed by heads of tax at the big four accountancy firms, as Tax Journalreported on 15 February. Matthew Hodkin, a tax partner at lawyers Norton Rose, noted last week the government ‘could not continue to be put in a position where large corporations were seen to be getting away with tax avoidance and yet continuing to win large government contracts’.
Writing in last week’s issue of Tax Journal, Hodkin said it was ironic that the rules outlined by HMRC would not catch ‘the transfer pricing arrangements of various US-headquartered groups operating in the UK’ which have the subject of recent scrutiny.
