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3. We therefore suggested more examples be included. A good source of further possible scenarios/examples could also be cases where HMRC have lost on technical grounds (even if the law has subsequently be changed, the examples could consider what the position would be under the GAAR absent that change).


4. Further detailed guidance is needed on the ‘main purpose’ test. HMRC has previously published a detailed consultation on the test yet in the GAAR guidance the discussion is extremely brief! Some examples would be very helpful (both where test met and where not met).


5. In summary, the legislation together with the Guidance needs to draw in much clearer terms the boundaries between what is reasonable and unreasonable tax planning. In our view, the current drafts do not achieve this.


In February 2013, the Committee commented on the HMRC Consultation headed “Tax and Procurement”. This was issued following the announcement by the Chief Secretary to the Treasury (CST) announcement on 25 September 2012 concerning procurement by Government.


The Consultation Document sets out new guidance, requiring potential suppliers to confirm their tax compliance as part of the procurement process. We made, inter alia, the following points on the proposals:


1. While no-one can sensibly argue with the sentiment that “Taxpayers’ money should not be funding tax dodgers” what is needed is a sensible balance, given that making procurement decisions based on a supplier’s tax compliance rather than their ability to deliver the desired services at the best price risks an (admittedly hard to measure) Exchequer cost. We do not consider that the current proposals are well balanced and are probably unworkable in practice.


2. The proposals have the potential to lead to “disproportionate” punishment in that non-compliance could lead to suppliers failing to


be awarded contracts or to have contracts terminated where the financial loss could potentially significantly dwarf the tax considered to be avoided. There is a real risk that businesses that rely on government business could be severely prejudiced.


3. We noted that it is considered that the proposals have been designed to be compliant with the EU Procurement Directive and the Public Contracts Regulations 2006. The EU Procurement Directive allows for the exclusion of a bidder which “has not fulfilled obligations relating to the payment of taxes in accordance with the legal provisions of the country in which he is established or with those of the country of the contracting authority.” As a general comment, if a taxpayer files a tax return believing it to be completed on a correct basis but subsequently pays further taxes as a result of a tribunal/court decision or settlement with HMRC, can it be said that the taxpayer has been guilty of not fulfilling its legal obligations as a taxpayer (particularly, in the absence of any penalties being applicable)?


4. The proposals will impose a huge additional compliance burden on companies (10 years is too long a period, a much shorter period such as 3 years would seem more reasonable). The compliance burden will be even more burdensome in relation to monitoring non-UK tax affairs.


5. To apply the rules retrospectively also appears manifestly unfair and unjust. It should be noted that the whole attitude and approach towards tax-planning by the Courts has changed fundamentally during the last 10 year period for a variety of different reasons. We would also make the point that the attitude of many taxpayers has also changed dramatically and that reformed characters should not be punished. It would only be fair to apply the rules looking forward from 1st April 2013 as suppliers cannot now “undo” the past.


6. The application to both UK and non-UK tax compliance is very


troublesome. How does a supplier determine what is an “equivalent” foreign tax? The proposed approach risks discrimination against UK groups given that there will often not be clear foreign equivalents of the UK’s anti- avoidance rules.


7. We assume the rules are intended to apply on a group worldwide basis. This is obviously unfair if a company is acquired into a group within the last 10 years. Also, if not limited to the actual bidding entity, do the rules cover minority shareholders in a bidding company or will it be limited to entities under the same control as the supplier?


8. It will be vital that in practice all government procurement teams operate the rules in the same way and assess any act of non- compliance on a sensible basis – otherwise there is a real risk of breaching the EU Procurement Directive. How will this be managed in practice?


9. In summary, for efficient procurement the playing field needs to be level and seen to be level. These proposals risk this not being the case and that ultimately will not benefit the wider body of taxpayers and may severely prejudice particular businesses.


Copies of the above submissions are on the CLLS website.


Bradley Phillips, Chairman, Herbert Smith Freehills LLP


City Solicitor • Issue 81 • 5


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