10.1.6 Tax risk

The overarching principle should be that all tax risks are allocated to the private party, so that among other things, government does not become entangled in the tax affairs of private businesses or individuals. Further, government should not provide indemnities to bidders and contractors for tax-related risks. Bidders are responsible for effectively structuring their bids to provide value, after taking account of tax obligations.

However, government must consider the impact that the tax assumptions underlying a bid may have on the project's:

• value. How has tax been priced into the outcome, and what benefit sharing (if any) is offered;

• risk profile. Including the implications for contract variations; and

• sustainability. Is the bid deliverable?

Tax rulings are not universally required at the bid stage. However, where government has concerns about tax risks and their significance to the project, it may be prudent to require short-listed bidders to obtain a non-binding ruling (advance opinion) or administratively binding advice (if available) before contractual execution. The RFP should indicate that government may require this. Some jurisdictions have a policy of requiring an appropriate tax ruling as a condition precedent to financial close (with the preferred bidder).

The denial of claimed tax deductions or bringing to account revenue amounts not returned by the taxpayer are the most serious issues and are discussed in the overview below. Income tax is a specialist field and only a summary of the key features of the new Division 250 is provided. An adverse tax outcome can also result from the application of the general anti-avoidance tax law (Part IV A) as well as the Commissioner's interpretation of general tax provisions relating to specific revenues or expense claims. Some general principles follow.