What is contract splitting?
Contract splitting has two distinct meanings. One is the division of a major piece of procurement into a number of smaller contracts in order to avoid rules governing big tenders. The other is the splitting of a person's employment contract among several countries to take advantage of low-tax jurisdictions.
Key takeaways
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Contract splitting has two distinct meanings: dividing major procurement into smaller contracts or splitting employment contracts across multiple countries.
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Procurement contract splitting avoids rules for major tenders like competitive tendering requirements and social or environmental compliance by staying under regulatory thresholds.
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Employment contract splitting allows individuals working in multiple countries to shelter salary in low-tax jurisdictions through separate contract arrangements.
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Both types of contract splitting are officially disapproved by regulatory bodies including the US Treasury and UK Parliament's public accounts committee.
Where have you heard about contract splitting?
Not from the literature of a company in which you are invested, that's for sure. Both types of contract splitting meet with official disapproval, so you may have heard of it from pronouncements by bodies such as the US Treasury and the public accounts committee of the House of Commons in the UK.
What you need to know about contract splitting.
Both types of contract splitting have the effect of dividing what is essentially one job into many smaller ones for reasons of gain.
Contract splitting in terms of procurement seeks to avoid rules governing major tenders - such as the demand for competitive tendering or for compliance with social or environmental objectives - by creating lots of smaller tenders, each of which is 'under the radar'.
In terms of individuals, the employment contract of someone working in different countries is split into separate contracts, one or more of which will be in a low-tax jurisdiction, allowing some of the salary to be sheltered.