The Tax Office will soon have a role in giving the green light to high-value Commonwealth procurement, and Treasury’s new Black Economy Division is calling for input as to how the new system should work.
After July 1, 2019, companies bidding for deals worth over $4 million of taxpayers’ money will have to provide “a statement from the Australian Taxation Office indicating that they are generally compliant with their tax obligations” as part of the tender, explains Kelly O’Dwyer, the Minister for Revenue and Financial Services.
The minister hopes this will stop tax cheats from unfairly competing with government suppliers that do the right thing, which is something the black economy taskforce fears, according to a brief discussion paper. The aim is to subject sub-contractors to the same rules, too, but exactly how is one key question left open for discussion.
“The Taskforce noted that supply chain integrity can be undermined due to illegal supplier practices that are often unknown at the procurement stage or during the course of the contract.
“These practices are often down the supply chain and are not able to be identified at the procurement stage, particularly as sub-contractors will often not be engaged at that point. This can mean that suppliers that do meet their regulatory obligations are at a commercial disadvantage.”
“The Government is taking the opportunity to level the playing field,” O’Dwyer said in the statement. “The new requirements will not only give businesses a fair go, it will instil public confidence that honest businesses are being awarded government contracts.”
It seems extremely unlikely that the new rule will affect large companies that aggressively minimise their tax with the help of top-tier accounting firms, although it could exclude companies involved in tax schemes that have been shot down recently.
“Businesses could also make a declaration that they are not in the business of providing tax related advice that has involved current or recent promotion of tax schemes that are not reasonably arguable,” the black market team suggests.
The discussion paper describes a process that could be accomplished by the ATO sharing the information with the agencies calling for tenders, except that would require changes to tax laws. It’s simpler for the government to put in place a new Procurement Connected Policy requiring the companies to get their own statement and attach it to their bid.
The government wants asking for one to be a simple, quick process, not involving any extra scrutiny from the ATO:
“The Statement of Tax Record will not be an ATO assessment of compliance. It will be a statement based on details on ATO systems including information supplied by the taxpayer under the self assessment system and declarations made by the taxpayer when requesting a statement.
“The ATO will build an online system that will enable businesses to request and receive these statements in a short time frame. It is expected that most businesses will be able to obtain the Statement of Tax Record without any difficulty.”
Just how satisfactory is a ‘satisfactory’ tax history?
The main questions for the consultation process are “how this is to be implemented, including what information should be included in the statements, and what tax obligations will need to be met to have a satisfactory tax record” — before anyone gets any big ideas, Treasury warns:
“The system will not rely on subjective criteria that could be open to conjecture or result in delays in the procurement process.”
The department says “subjective criteria that could be open to interpretation” would slow down the process, and the government’s expectation is that the ATO will be able to produce each statement within two days, or four days for companies with complex tax affairs.
The discussion paper points out there is currently “no red flag that might otherwise alert procurement officers to broader black economy behaviour” when a company that doesn’t pay all of its tax puts in a tender for a big contract. Sub-contractors with a history of avoiding tax can also get work in big contracts without the prime contractor knowing.
The plan is to start off with simple criteria for what constitutes a “satisfactory tax record” in the first year, so businesses, procurement officers and the ATO can all ease into these new requirements. “After this period, the criteria will be further developed in line with the outcomes of consultation and experience in the first year” and the standard for a good tax record will be set by a “co-design” process.
The paper suggests the criteria should not be too strict, and the statement limited, in terms of how far back it goes.
“The criteria to be used are intended to show that the business has demonstrated satisfactory engagement with the tax system, rather than a perfect tax record. This will ensure that businesses that generally do the right thing but may have made unintended or minor errors, and taken steps to rectify the issue, can still tender for government business.”
Where the ATO doesn’t have much information on file — for companies that are new to Australia — the paper suggests the agencies could simply ask them to promise to pay their taxes properly in future or declare that they have done so in other countries.
Another proposal is that the ATO tax statement flags whether the company has adopted the Voluntary Tax Transparency Code or not.