Tax avoiders 'banned' from bidding on U.K. government contracts

Summary:The U.K. government says that major companies that do not pay the full amount of corporation tax will be banned from bidding on public-sector contracts, potentially harming the likes of Google, Microsoft, Amazon and IBM, among others.

New rules announced today will see a number of major technology companies—and in one case, a major provider of coffee—barred from bidding on government or public sector contracts in the U.K.

The U.K.'s Chief Secretary to the Treasury Danny Alexander said today that companies bidding on public sector and government contracts will have to make a declaration about their tax compliance (or in some cases lack thereof) before they can be considered. Those that fail to pay the full amount of tax, by using tax loopholes and offshore subsidiaries, could face being refused on such grounds. 

While on some part it is seen as a slap on the wrist for companies accused of avoiding paying the full amount of tax in the country, on the other hand it is also an incentive to those who wish to capitalize upon the U.K.'s IT spending budget, by taking advantage of lucrative government contracts.

According to Bloomberg, Alexander said that the government's stand on "aggressive tax avoidance is totally unacceptable." He noted that, "these new rules are another significant tool as they will enable government departments to say no to firms bidding for government contracts where they have been involved in failed tax avoidance."

"If you want to work for us, you should play by our rules," he added.

It comes a few months after Google and Amazon were both grilled by the U.K. Publc Accounts parliamentary committee , which were both put under the spotlight after U.K. records showed that they did not pay the full amount of corporation tax in the country.

Alexander said the government also plans to expand the current system that seeks to claw back unpaid taxes.. HM Revenue and Customs, the U.K.'s tax department, will set up an "affluence" unit that has already raised £44 million ($68m), by examining the finances of the top half-million people in the U.K. with net wealth of more than £1 million, says The Guardian.

Corporation tax is only paid by companies working in the U.K., and has steadily been declining from 28 percent in 2010 by a rate of about 2 percent each year, dipping to 23 percent for the 2013 tax year, starting in April. 

Many technology firms in particular have avoided paying the full amount of corporation tax. Starbucks hasn't paid any corporation tax in the past few years.

While the move may not affect Starbucks as much as others, technology companies  such as Amazon, Microsoft or Google have all been accused  of failing to pay the full amount of corporation tax in the U.K.

IBM could also face a tough time renewing its contracts with the U.K. public sector as many government departments rely on IBM servers to power their data centers, for instance.

These firms used the "double Irish" or the "Dutch sandwich" tax avoidance methods of passing sales through a third-country where the tax rate is far less, and paying commission back to the U.K. office, which is only taxable once costs have been deducted. This ensures that the vast amount of wealth remains offshore, keeping its often U.S.-based headquarters in profit and its subsidiaries making a loss.

Numerous technology companies speaking to ZDNet say they "comply fully" with all the tax rules in the U.K., but the ongoing argument is that it's the government's tax rules that are broken . If the tax rules are 'fixed' it could see many major companies pulling out of the U.K. altogether. 

Topics: Google, Amazon, Banking

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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