By Estelle Shirbon
LONDON (Reuters) - Britain's tax authority approved a controversial deal with Goldman Sachs
The challenge by activist group UK Uncut Legal Action over a deal worth up to 20 million pounds ($30 million) to the U.S. bank, stems from public anger in Britain about how big firms succeed in paying less tax than many ordinary people struggling to cope with a stagnating economy and government spending cuts.
The risk to Goldman Sachs is further damage to its image in Britain after a public outcry in January caused it to scrap plans to delay paying bankers' bonuses to make the most of an income tax cut for high earners.
In financial terms, the disputed 20 million pounds is a drop in the ocean for a bank that paid its employees $12.9 billion in compensation and benefits last year.
The case concerns a settlement reached in 2010 between Goldman Sachs and the tax authority (HMRC), to end a long-running dispute over a now-banned tax avoidance scheme involving the payment of bonuses to UK staff via an offshore tax haven.
Other banks that had been using the scheme settled with HMRC in 2005, but Goldman Sachs resisted paying what HMRC said it owed until November 2010, when it reached a settlement with then HMRC boss Dave Hartnett.
Ingrid Simler, a lawyer representing UK Uncut Legal Action, told the High Court that Hartnett wrongly agreed that Goldman Sachs should pay the principal it owed but not the interest that had accrued during its five-year battle with HMRC.
The tax authority's board rejected the deal, but Hartnett approved it anyway to avoid embarrassment to himself and to finance minister George Osborne, Simler said, citing an internal email from Hartnett dated December 7, 2010.
"MAJOR EMBARRASSMENT"
"The risks here are major embarrassment to the (finance minister), HMRC ... you and me, not least if (Goldman Sachs) withdraw from the Code" he said, referring to a new code of practice aimed at reducing tax avoidance, in the email, read out by Simler in court.
UK Uncut Legal Action says Hartnett was afraid of embarrassing Osborne because the finance minister had announced the previous week that he was cracking down on tax avoidance by big banks and had successfully forced the top 15 banks, including Goldman, to sign up to the new code.
"I was concerned that withdrawal would have embarrassed the Chancellor," Hartnett said in his witness statement, a copy of which was circulated by UK Uncut.
The Treasury and HMRC declined to comment.
Simler argued that avoiding embarrassment was an irrelevant consideration and that HMRC should have re-opened discussions with Goldman and obtained the interest it was owed.
Simler said the amount of interest Goldman owed had never been disclosed but that evidence from an HMRC whistleblower suggested it could be as much as 20 million pounds.
UK Uncut Legal Action wants the High Court to declare the settlement was unlawful.
The activist group labels the settlement a "sweetheart deal", a term rejected by the tax authority.
"At a time when the government is making huge, unjust cuts to public spending, the rich must pay their fair share," said Murray Worthy, director of UK Uncut Legal Action.
The one-day High Court hearing into the deal is a judicial review. The court will reserve judgment until a later date.
HMRC puts its side of the story to the court later on Thursday. Goldman Sachs, not an active participant in the case, declined to comment.
At a time of budget austerity, revelations about the low tax bills of companies ranging from Vodafone
Finance minister Osborne has called aggressive tax avoidance "morally repugnant" but critics say his new General Anti-Avoidance Rule is not enough.
(Additional reporting by Lauren LaCapra in New York; Editing by Elaine Hardcastle and Helen Massy-Beresford)
Source: http://news.yahoo.com/court-hears-uk-taxman-struck-goldman-deal-save-121354315.html
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