Out-Law News | 16 May 2013 | 12:45 pm | 3 min. read
Uk Uncut had challenged the agreement reached by the bank in November 2010 with Dave Hartnett, HMRC's then permanent secretary, in relation to unpaid national insurance contributions (NICs) on offshore bonuses paid to the bank's staff. The deal saw HMRC waiving up to £20 million of interest in respect of the unpaid NICs.
HMRC's internal review body, the High Risk Corporate Programme Board had rejected the settlement as it did not include the interest on the unpaid tax. However, when it was suggested that Goldman Sachs should pay the interest, an email sent by Hartnett said that the bank had gone "off at the deep end" when it the suggestion was made.
The bank had threatened to withdraw from the Code of Practice on Taxation on Banks if HMRC insisted on the payment, Mr Hartnett said in a witness statement at the hearing of the case. Mr Hartnett had therefore confirmed that the settlement should stand as originally agreed.
The Court found that it was lawful for HMRC to take into account the threats to withdraw from the voluntary code of conduct but the Judge, Mr Justice Nicol, said that Mr Hartnett had been wrong to take into account the potential embarrassment to Chancellor of the Exchequer George Osborne if Goldman Sachs were to withdraw from the tax code. "HMRC accepts that was an irrelevant consideration and should have not featured in his decision making process," he said.
Mr Justice Nicol said that the settlement “was not a glorious episode in the history of the Revenue.” He said that the HMRC officials who negotiated the deal had not consulted lawyers and had "relied on their belief or recollection that there was a barrier to the recovery of interest" . In fact there was no legal bar to recovering the interest. HMRC had also "overlooked" the need for approval of the deal by the High Risk Corporate Programme Board.
James Bullock, a tax expert at Pinsent Masons, the law firm behind Out-law.com said “We are not surprised that HMRC's decision-making in this case was vindicated by an independent review.”
He said "HMRC must be allowed - with adequate controls - to collect tax efficiently through negotiation rather than litigation – indeed the flexibility of such an approach is good for the economy.”
“Tax is complex for big business, and many decisions are a matter of judgement involving issues of currency exchange, cross border arrangements and the utilisation of tax incentives. It is not a simple deduction like PAYE." Bullock said.
He said that it was unfortunate that the issue of tax and business "has been 'hi-jacked' by activist groups" and in response HMRC has made the Litigation and Settlement Strategy "so rigid that it is in danger of making the UK's Tax system uncompetitive – despite the Government’s efforts to encourage more businesses to set up here by lowering the corporation tax rate.”
“The procedural niceties of the particular Goldman Sachs transaction have been an unwelcome distraction from the underlying issue, that HMRC needs flexibility to negotiate under a robust system of governance which ensures that they do so in the interests of fairness and for the benefit of the main body of tax-payers.” James Bullock said.
He said that HMRC has already made changes to its governance to tackle any potential weaknesses in its decision-making processes when dealing with large corporates.
“There are proper channels for the oversight of HMRC’s activities. It’s time for politicians and campaigners to focus on informed oversight, and let HMRC get on with its job without the distraction of a major political and legal row.” said James Bullock.
A report into alleged 'sweetheart' deals entered into between HMRC and large companies, including Goldman Sachs and Vodafone, published by the Public Accounts Committee (PAC) in December 2011 was highly critical of HMRC.
This report led to HMRC appointing an independent 'assurance commissioner' to oversee any tax settlements for more than £100 million reached with large companies.
The National Audit office commissioned retired High Court Judge Andrew Park to investigate five of HMRC's large settlements. The cases were anonymised but one of them related to Goldman Sachs and Andrew Park decided that the case did not breach HMRC's Litigation and Settlement strategy.