I was asked yesterday whether it was possible for a local Clinical Commissioning Group (CCG) (the supposedly GP controlled commissioning bodies within the NHS) to block suppliers who either use tax havens or who tax avoid.
My reply to the enquirer was as follows:
Any CCG trying to adopt such a policy has to be very careful as it is quite possible that their actions in doing so may be contrary to EU law, which is why measures to create black lists on tax avoidance have failed at government level, so far. I therefore think some caution is needed here: much as I would like all CCGs to oppose tax abuse I would also hate to see them being fined for inappropriate contract discrimination.
In practice CCGs have to show that the choice they make to not award a contract is because the tax haven activity or the tax avoidance has direct impact on the services that the contract actually relates to and not just because the company uses such places. Try as I might I can't think of many CCG contracts where this could possible apply, but the aim has to be to find those occasions when it might.
Tax avoidance is an easier target. There are obvious examples where this is being exploited, e.g. with regard to VAT avoidance giving outsourced pharmacies in hospitals a massive cost advantage over in-house operations. Reflection in this gives me an opportunity to suggest a statement that I think a CCG could use without risk of penalty, which pragmatically I think to be vital for the interests of local patients. This statement is as follows:
“We will require all those bidding for contracts with the CCG to disclose the impact that:
a) the use of tax haven transactions either on their part or by other members of the group of companies of which they are a part, or
b) tax planning intended to take specific advantage of exemptions, allowances and reliefs in a fashion unlikely to be available to or be used by other bidders
might have on the cost of the services that they wish to supply and the way in which they are supplied and to highlight any resulting risks that any change in tax law, regulation or practice might have on the durability of such arrangements. For the purposes of this condition a tax haven is considered to be a location with a secrecy score of more than 65 in the Tax Justice Network Financial Secrecy Index published in 2013."
I think this provides three things. The first is a requirement for self-declaration. The second is a clear link between the disclosure and the contract, which is vital. The third is a risk appraisal requirement, which is, I think, important as its disclosure will require details of the arrangement to be put on record.
I hope this helps.
Comments from those with experience on these issues would be appreciated.
38 Degrees might be interested.
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I sometimes listen to the podcast of Richard D Wolff, an American economics professor and Marxist. An entertaining speaker. He reported some weeks ago the state of Vermont is doing something like this. Sorry, I don’t have any more information.
Wolf’s critique of contemporary capitalism is spot on. here he is talking to Bill Moyers: http://billmoyers.com/segment/richard-wolff-on-capitalisms-destructive-power/
Almost certainly at least one famous company involved in healthcare, among other endeavours, would start a large ¨bullying¨ campaign aimed at government ministers etc….
But then…what´s new?
1) Your threshold of ‘what constitutes a haven’ will need to be revised to ensure no member country is on the list. The TJN Index appears to catch Luxembourg.
2) You’d need to be clear on what are the implications of a bidder not disclosing properly. I would assume this would be a non-scored element of an ITT (looks like a forward looking question so not suitable for PQQs). The only consequences for non-disclosure would be disqualification from the contest and (if they are awarded a contract and the non-disclosure was discovered afterwards) termination of the contract. Comments:
a) This assumes the client CCG would even check whether the disclosures are true. Will they? How? Who will do it? Procurement staff (particularly in CCGs) struggle monitoring the day-to-day stuff. They won’t have the time, resources and expertise to check.
b) If the tax activities affect the cost of the services, it suggests that the tax incidence is borne by customers. Is this necessarily true for a particular bidder? The bidder can simply say ‘our tax affairs only affect shareholders, not customers or workers’ and be done with it. This would not be at odds with views you have previously expressed about tax incidence.
c) If non-disclosure were discovered after the contract awarded, the chances of getting the client organisation to do anything about it seems slim. Here in local government we struggle to get our internal clients to take action when the provider gives bad service — getting them to take action over something like this seems unthinkable. And the NHS are worse at it than us.
3) What do the expressions ‘MIGHT have an impact on the cost…’ and ‘highlight any resulting risks that any change in tax law, regulation or practice might have on the durability of such arrangements’ mean? From experience, if you ask woolly questions, you’ll get woolly answers (and lots of clarification questions which most public authorities would struggle to answer).
4) If there are background checks to confirm the accuracy of the disclosure (and I think that is very unlikely), the CCG would have to make such checks (and demonstrate it has the capability of doing so) across all member states. If they only check UK bidders, it is discriminatory practice. To me, this is a bigger hurdle than trying to find a link between tax activity and the service being tendered (which is a big enough hurdle).
5) Even if a bidder was honest said ‘yes, we use havens all the time’, what are the implications? Automatic disqualification? On what basis? You’d need to be very transparent. Saying ‘we disqualified because we don’t like what you’re doing’ would not be good enough. With writing ITTs, writing the questions is easy. Writing the criteria for how we deal with it is the hard part.
6) There is already a PQQ question public authorities are supposed to ask about whether the bidder has been convicted of cheating the revenue. It is a fair question in principle, but discriminatory (i.e. doesn’t affect bidders from Latvia or Portugal who might be diddling their own tax authority). I do not recall seeing one PQQ/tender response where the bidder ever ticked ‘yes’ and I must have seen hundreds of tenders. I am not aware of any tender where these responses were ever checked.
I think it is clear hat I ma asking for the impact of structures on costing and the inherent risk within them to be disclosed
In that case a lot of your questions fall away – even in the EU – where there is risk of change
Thank you for researching and posting this
“I think it is clear hat I ma asking for the impact of structures on costing and the inherent risk within them to be disclosed”
That wasn’t clear to me at all from the question, and I think a lot of bidders would struggle with it. If a cheeky bidder simply said ‘all the benefits from our structure go to our shareholders – our pricing of this bid is unaffected’, how can the public authority possibly argue with that, given the limited time and expertise available?
Most public authorities (even large local authorities, let alone tiny CCGs) simply don’t have the in-house expertise to evaluate the responses. Knowledge of international tax just isn’t much of a core skill, even amongst finance officers. They won’t know a good response from a bad one (which then raises other issues leading to risks of challenge).
The thing will just add another layer of work to bidders (when we are all looking to simplify things) for little practical purpose.
And there is the ‘discrimination’ question – I am not aware of changes in the EU to relax that. If UK bidders are getting checked out (assuming anybody is getting checked out), but a bidder from another state is not, that is systematic discrimination.
How will this question be evaluated. Writing tender questions is easy. Writing the evaluation criteria the hard bit.
If you get asked this question again, these should be your simple answers.
Thank you
But so far you have not added any value
You asked for feedback from people who worked in the field, and I have done just that – as honestly as I could.
I could have just given you the answer you wanted to hear – how much value would that add?
If you tried to help then a constructive approach helps
Because I ciukd not see that I have no idea if you were trying to help or hinder
In that case I have no choice but be sceptical
Sorry
As you pick out the good questions for abuse, I was of course drawn to Adrian’s comment at 11.45am, particular Para 2 (b). Your further unpleasant response to his comment at 2.12pm: “If a cheeky bidder simply said ‘all the benefits from our structure go to our shareholders — our pricing of this bid is unaffected’, how can the public authority possibly argue with that…” was further proof.
He is asking about tax incidence. If it all on the shareholders then how can tax avoidance possibly have “a direct impact on the services that the contract actually relates to”?
P.S. Ducking the question, or deciding not to post has two effects: first it feeds the questioner’s ego. Second it reaffirms his opinion that the Courageous State has no moral courage at all.
Let’s be honest – if a company was stupid enough to say such a thing it would be asking not to get the bid
That is why I presumed he was not trying to be helpful although he had claimed otherwise
“If a company was stupid to say such a thing”! Really! If the incidence of tax is only on the shareholders then it follows that should say it doesn’t it. Your last comment – and your post – suggests you believe it isn’t only on the shareholders. So Adrian’s question stands to be answered. And no, you haven’t answered it yet.
Incidence is a complete red herring here
Facts are what will matter – not tin pot theory
My comments would be
1. What is your definition of a group? I could use a decontrol structure to circumvent
2. How is anyone supposed to know what position other bidders are in to comply with b? I might assume the others bidders are all engaged in tax avoidance for example?
Thanks
Group is as per Companies Acts. I can’t see anyone changing structure for a contract
I think second part could be refined to refer to use of tax law with the intention to eecure a competitive advantage
Indirectly relevant to this post but I wondered if Richard has had a chance to look at the wikileaks draft negotiations for TISA — even more secret than TPP and TTIP negotiations. It has huge implications for global finance and tax havens.
https://wikileaks.org/tisa-financial/WikiLeaks-secret-tisa-financial-annex.pdf
Professor Jane Kelsey, Faculty of Law, University of Auckland, New Zealand has written a memorandum which provides a more readable preliminary analysis of the leaked financial services chapter of the Trade in Services Agreement dated 14 April 2014.
http://wikileaks.org/tisa-financial/analysis.html
She writes:
‘TISA is designed for and in close consultation with the global finance industry, whose greed and recklessness has been blamed for successive crises and who continue to capture rulemaking in global institutions.’
‘A sample of provisions from this leaked text show that governments signing on to TISA will: be expected to lock in and extend their current levels of financial deregulation and liberalisation; lose the right to require data to be held onshore; face pressure to authorise potentially toxic insurance products; and risk a legal challenge if they adopt measures to prevent or respond to another crisis.’
‘The participants in the TISA negotiations are Australia, Canada, Chile, Chinese Taipei (Taiwan), Colombia, Costa Rica, Hong Kong China, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Turkey, the USA and the European Union, including its 28 member states.
The leaked text shows the US and EU, which pushed financial services liberalisation in the WTO, are the most active in the financial services negotiations on TISA. The third most active participant is the renowned tax haven of Panama.’
Even anti-capitalist activists were unaware of these secret negotiations until very recently. It is almost as if TPP and TTIP are intended to act as a blind for a potentially much more serious treaty. The story about TTIP was that the EU was pushing for inclusion of financial services but the US was reluctant. Certainly this doesn’t seem to be true for TISA.
‘The rules apply to measures that ‘affect’ the supply of financial services through foreign direct investment (commercial establishment) or offshore provision by remote delivery or services purchased in another country (cross-border). They also aim to ‘discipline’ governments in favour of a light handed and self-regulatory model of financial regulation. The substantive rules target what the financial services industry sees as obstacles to its seamless global operations, including:
(ie list of what global finance wants to be abolished or prohibited – sanction imposed by corporate tribunal such as ISDS)
limits on the size of financial institutions (too big to fail);
restrictions on activities (eg deposit taking banks that also trade on their own account);
requiring foreign investment through subsidiaries (regulated by the host) rather than branches (regulated from their parent state);
requiring that financial data is held onshore;
limits on funds transfers for cross-border transactions (e-finance);
authorisation of cross-border providers;
state monopolies on pension funds or disaster insurance;
disclosure requirements on offshore operations in tax havens;
certain transactions must be conducted through public exchanges, rather than invisible over-the counter operations;
approval for sale of ‘innovative’ (potentially toxic) financial products;
regulation of credit rating agencies or financial advisers;
controls on hot money inflows and outflows of capital;
requirements that a majority of directors are locally domiciled;
authorisation and regulation of hedge funds; etc.’
I think I should look
Thanks
What a rigmarole. The problem is EU law. If Democratically we want to stop this abuse in the UK, then let’s do it.
Stephen, partly true.
Capacity to actually follow this through (expertise available etc.) is another one, as I suggested above.
There is another issue which I hadn’t raised.
There is a long queue of different interests trying to get their stuff into tenders. The tax avoidance people are by no means at the front.
Get in a room the Diversity and Equalities crowd, and they think compliance with equalities law is the top priority (I’ve been stuck in a 4 hour meeting with them arguing over this – felt my brain was going to explode).
Ditto for the health and safety people. Then there’s data protection people. The environmental people (I’ve had a colleague wanting pages and pages in the tender on the ethical timber sourcing in school uniforms – yikes, didn’t know there was timber in clothes). Then there are those wanting to fight union blacklisting.
These may be worthy, but can you see how procurement people like me, and the service leads we support, can get a bit sympathy-fatigued about it?
Me, I’d like to exclude from tenders companies controlled by people who don’t pay their child support. I can’t stand people like that, not that it affected me personally. A very important issue, affecting many youngsters who have been abandoned by their fathers and occasionally mothers. But hey ho, that’s just me, I’m just a tiny cog…