UK judge says Goldman tax deal lawful, but "not glorious"

LONDON Thu May 16, 2013 1:08pm BST

A Goldman Sachs sign is seen as traders work on the floor at the New York Stock Exchange, April 2, 2013. REUTERS/Brendan McDermid

A Goldman Sachs sign is seen as traders work on the floor at the New York Stock Exchange, April 2, 2013.

Credit: Reuters/Brendan McDermid

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LONDON (Reuters) - Britain's tax authority was heavily criticised by a judge on Thursday, who nonetheless ruled its deal with Goldman Sachs worth up to 20 million pounds to the U.S. bank was lawful.

High Court Judge Andrew Nicol dismissed a claim by campaign group UK Uncut Legal Action that the tax settlement with the bank in 2010 was an unlawful "sweetheart deal".

But he criticised the way HMRC had decided how much tax Goldman Sachs should pay.

"The settlement with Goldman Sachs was not a glorious episode in the history of the Revenue," the judge wrote, before listing errors made by HMRC.

"However, my task is to decide whether the decisions of HMRC under challenge were unlawful," he wrote, citing a previous ruling that said "maladministration and illegality are separate issues".

The judgment feeds into the debate on corporate tax avoidance in Britain, where some lawmakers have accused the taxman of being "too cosy" with big business.

At a time of government austerity cuts and economic stagnation, the question of how big companies keep their tax bills low is considered a matter of high public interest.

Google Inc was facing another grilling over its tax affairs on Thursday from a committee of lawmakers who called the company back after questions were raised about testimony given in an earlier hearing.

A Reuters investigation has revealed that the tax take from big companies fell sharply in the past 12 years, despite profits rising, while income taxes from individuals and small businesses have risen.

HMRC said the judge's ruling had "drawn a line under the Goldman Sachs issue".

"The High Court's comprehensive dismissal of UK Uncut's claim puts to rest the fallacy that HMRC is soft on large businesses," Director General for Business Tax Jim Harra said.

The case was heard earlier this month.

EMBARRASSMENT

UK Uncut Legal Action said it was disappointed by the ruling, but the court case had helped expose what went on behind closed doors between HMRC and large companies.

Goldman Sachs, which was not a party to the court case, declined to comment.

The case concerned a deal reached orally in November 2010 between then HMRC boss Dave Hartnett and Goldman Sachs executives to resolve a long-running dispute over a now-banned tax avoidance scheme involving the payment of bonuses to UK staff via an offshore tax haven.

UK Uncut alleged that Hartnett had wrongly agreed that Goldman should pay the principal it owed but not the interest that had accrued during the five-year dispute.

Hartnett then approved the deal despite opposition from HMRC's own High Risk Corporate Programme Board, partly to avoid embarrassing George Osborne, the finance minister.

Osborne had just announced a new tax code for banks aimed at reducing avoidance and Goldman was threatening to pull out of the code if Hartnett reneged on the oral settlement.

"Mr Hartnett took into account the potential embarrassment to (Osborne) if Goldman Sachs were to withdraw from the tax code. HMRC accepts that was an irrelevant consideration and should not have featured in his decision-making process," the judge wrote.

(Editing by Erica Billingham)

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Comments (1)
finchley wrote:
Just because it is lawful does not vindicate HMRC’s position. Some members of HMRC (largely spokespersons and Harknetts) have managed to cover themselves in a very smelly substance which reflects badly on HMRC as an organisation.

The appalling dereliction of duty by HMRC in respect of the taxing of MPs expenses (private individuals would have been taxed on many of the claims under P11D procedures), the non-taxation of earnings by people who were paid to provide information to Murdoch papers, the lack of taxation on drug dealers, the list goes on. Please stop hiding behind your trite little phrase that ‘We don’t comment about a person’s tax affairs, it’s confidential’. It sounds like those mafia agreements where there is a clause in the agreement which states that all activities under the agreement are undertaken in commercial confidence. One of the biggest cop-outs which is being abused again and again.

May 16, 2013 12:28pm BST  --  Report as abuse
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