9.1.1  Taxation

Given the consequences of a poor tax outcome, it is expected that for all PPP projects, both bidders and the government's PPP project team will be supported by professional tax advisors.

The tax consequences of a procurement alternative (other than government-financed and government-owned) need to be fully understood by both sides to a PPP project for the following reasons:

•  commercial risk.  If a bidder has incorrectly evaluated the project's tax liabilities to such an extent that the going-concern status of the arrangement is compromised, the State/Commonwealth could be left bearing the financial risks of the project;

•  reputation risk.  If a PPP arrangement is structured in a way that generates substantial tax liabilities and/or the operation of the infrastructure asset is adversely affected, this could damage the reputation of the project in the public domain and compromise future projects. Reputation risk is also important to the government counter-party. For example, a state sponsor will not wish to support an overly aggressive tax structure. Among other things, this may adversely affect a jurisdiction's negotiations for funding under the Commonwealth/State revenue sharing arrangements; and

•  fair comparison of bidders.  Tax analysis is important to ensure the tax profiles of rival bidders are fairly compared.