Companies found guilty of aggressive tax avoidance will be banned from bidding for major Government contracts, under new rules published by the Treasury.
The rules will require all firms and individuals bidding for contracts to declare whether their tax returns have been rejected because of involvement in a tax avoidance scheme.
And firms will also have to sign a clause in contracts allowing departments to terminate the agreement if they are later found to have breached tax compliance obligations.
Announcing the plans in a written statement to Parliament, Chief Secretary to the Treasury Danny Alexander described the changes - due to come into effect on April 1 - as "another significant tool (which) will provide a framework to enable Government departments to say no to firms bidding for Government contracts where they have been involved in failed tax avoidance".
Under the new regime, suppliers bidding for contracts will be required to inform Government departments if any tax return has recently been found to be incorrect as a result of an HM Revenue and Customs challenge under anti-avoidance and anti-abuse rules or due to involvement in a failed avoidance scheme.
Successful bidders will be contractually obliged to tell departments if they are found in breach of tax obligations after winning a contract.
The move comes after massive controversy over the tax affairs of major multinational companies like Starbucks, Amazon and Google, though there is no suggestion that these firms would fall foul of the new arrangements.