‘Grave public disquiet’ at Revenue’s deal with bank

A deal between the tax authorities and banking giant Goldman Sachs has caused “grave public disquiet” and must be declared unlawful, it was argued at the High Court yesterday.

The unprecedented case is being brought by tax avoidance campaigners UK Uncut Legal Action, who say rich companies are wrongly being let off paying millions in tax in “sweetheart deals” while the Government imposes tough austerity measures on the poor.

The legal action concerns a 2010 settlement reached by HM Revenue and Customs (HMRC) with the US bank allowing it to avoid a multimillion-pound interest bill on unpaid tax on bonuses.

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Ingrid Simler QC, appearing for UK Uncut, said the decision of David Hartnett, permanent secretary for tax at the time, to “shake hands” on the settlement breached the HMRC’s statutory duties and its litigation and settlement strategy. She said that it amounted to Goldman Sachs being “rewarded” for several years of failing to pay tax it owed.

HMRC says a 2012 report by the National Audit Office (NAO) has justified its stance. The report found that five big business settlements, including the Goldman Sachs deal, were “reasonable” because the tax authority was likely to have received less if it had gone to court to recover payments and lost.

But Ms Simler told Mr Justice Nicol, sitting at London’s High Court, irrelevant considerations were taken into account and the agreement did not include any element for national insurance contributions outstanding for over five years. The settlement had arisen “out of a tax avoidance scheme designed to avoid payment of national insurance contributions on bonuses”.

The error in reaching the settlement was identified quickly by HMRC internal review procedures, and its High Risk Corporate Programme Board rejected the proposed settlement, said Ms Simler.

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But Mr Hartnett and another tax commissioner elected to affirm the settlement and not re-open it.

Ms Simler argued the decision was influenced “by Mr Hartnett’s concern to avoid personal embarrassment, the risk of embarrassment to HMRC and other ministers and officials”.

The exact amount lost to the Revenue was not known but was at least £5m-£10m, and the Public Accounts Committee had received evidence that the true figure might be up to £20m.

Ms Simler said that normally such settlements were kept out of the public domain and the tax-paying public would not ordinarily know how HMRC was applying its public policy.

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“In these proceedings, that position is reversed and the facts have emerged and grave disquiet has been caused.”

Ms Simler said it was HMRC’s case that its litigation settlement strategy created no “hard-edged rules” and generally provided “guidance only”.

HMRC was asserting that it acted lawfully and would be entitled to act in a similar way in the future and arrive at the same decision.

That “misapprehension” was causing “real disquiet among the taxpaying public”, said Ms Simler.

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She argued HMRC was “not a tax imposer – it is a tax collector” and its duty was to collect tax imposed by Parliament.

She said tax disputes involved not only the relevant taxpayer but also the wider taxpaying public, and settlements could not be viewed through ordinary “commercial spectacles” but had to be looked at in the light of the duty to uphold the law and obtain fair treatment for all taxpayers.

Ms Simler said: “The purpose of this challenge is to prevent a recurrence and correct the misapprehension displayed by HMRC in these proceedings.”

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