High Court clears “sweetheart” tax deal between Goldman Sachs and HMRC

The High Court, in a ruling yesterday, cleared the "sweetheart" tax deal between HM Revenue and Customs and Goldman Sachs terming it as procedurally flawed but not unlawful.

The court listed a number of HMRC failings, including Dave Hartnett, then permanent secretary for tax, wrongly factoring "the potential embarrassment" to chancellor George Osborne if the settlement worth up to £20 million failed to go through.

Hartnett agreed to the deal on 19 November, 2010 after a long-running dispute with Goldman Sachs over National Insurance contribution payments that dated back to the 1990s.

Justice Nicol, sitting in London, said it was "not a glorious episode in the history of the Revenue".

He ruled case law showed that "maladministration and illegality" were separate issues, and letting the deal to go ahead was not itself unlawful.

According to tax authority lawyers who defended the settlement, it was among five big business deals declared "reasonable" by a 2012 report of the National Audit Office (NAO).

The ruling came as "a disappointment" to campaign group UK Uncut Legal Action which had applied for judicial review, arguing HMRC's list of failings involved illegality as also a breach of statutory duty.

The group wanted the High Court to declare the settlement, under which Goldman Sachs would pay the principal it owed but not the accrued interest during a five-year battle with HMRC, as unlawful.

In arriving at the judgment, the court found that HMRC's top officials were legally allowed to consider bank's threats to withdraw from the Code of Practice on Taxation for Banks while making an assessment as to pursuing Goldman Sachs for the tax owed.

Following the court' decision HMRC's director general for business tax, Jim Harra, while admitting that mistakes had been made in settling the Goldmans dispute, said under the circumstances, the right deal had been made.

"This issue has been rigorously and repeatedly scrutinised – by the Public Accounts Committee, by a retired High Court judge on behalf of the National Audit Office and now by the High Court itself," he said.

He said the public could have confidence in HMRC's governance processes, which it had strengthened, providing greater levels of scrutiny, transparency and role separation.

HMRC said changes had been made to its practices since it made the agreement with Goldman Sachs in 2010.

It also said that the maximum loss to taxpayers was £8 million.

Harra said the court's comprehensive dismissal of UK Uncut's claim put to rest the fallacy that HMRC was soft on large businesses.

He added, the High Court's judgement confirmed what HMRC had always said: that while it made errors in settling the Goldman Sachs dispute, it made the right settlement in the circumstances, and that its decision was both proper and lawful.