HMRC has published a discussion document which outlines the background and details of the proposal on tax compliance and procurement relating to the declaration of tax compliance. The closing date for comments is 28 February 2013.

Under the new policy, from 1 April 2013 potential suppliers to central government will have to self-certify, as part of the selection stage of above-threshold procurements, their recent tax compliance history.

This includes all central government departments, their executive agencies and non-departmental public bodies.

Non-UK suppliers with tax obligations in foreign jurisdictions will also be required to certify that there has not been an 'occasion of non-compliance' in relation to the equivalent foreign tax rules.

An 'occasion of non-compliance' will be assessed based on existing anti-avoidance rules such as Targeted Anti-Avoidance Rules (TAARs) and the soon to be enacted General Anti-Abuse Rule (GAAR).

The timeframe for declaration is still under consideration. It is recognised that the historical extent must be proportionate. A supplier may reasonably not hold records beyond a certain point, particularly where there is no statutory or regulatory requirement to do so. So there needs to be a time limit, beyond which earlier events are disregarded. The current proposal is that 10 years is a reasonable length of time.

Contracting authorities will ensure contractual documentation contains a standard clause enabling them to terminate a contract, at their discretion, if a supplier has had an 'occasion of non-compliance'. It also places a contractual obligation on the supplier to keep the contracting authority notified of changes in relation to tax compliance. Failure to do this will also trigger remedies including, potentially, termination of the contract.

The discussion document and draft guidance is available from HMRC.