The legal case brought by pressure group UK Uncut Legal Action against HMRC centres on the so-called Goldman Sachs “sweetheart” tax deal made in 2010.
The dispute began over a tax avoidance scheme involving the payment of bonuses to UK staff via offshore tax havens. Several other banks had been using the scheme but only Goldman refused to settle in 2005. It was agreed in 2010 that Goldman should pay the principal it owed but not the interest gained over the five years.
UK Uncut alleges the deal is unlawful as it was in direct contradiction of HMRC’s own statutory duty to collect tax properly due, and its litigation settlement strategy prohibiting package deal settlements or settlements where HMRC “splits the difference” with the taxpayer.
The risks here are major embarrassment to the [chancellor of the Exchequer], HMRC, the [large business service of the HMRC], you and me
Hartnett shook hands on the deal with Goldman’s Mike Housden, which allegedly let the bank off the interest, and then refused go back on the agreement despite HMRC’s High Risk Corporate Programme Board rejecting the deal and advising that discussions should be re-opened to recover the money.
An email from Hartnett to other senior HMRC officials said that Goldman Sachs “went off the deep end” in response to the suggestion the deal should be re-visited.
However, it was revealed that just one day after HMRC’s general counsel, Anthony Inglese, made this recommendation Hartnett and commissioner Melanie Dawes contacted Goldman’s and confirmed the deal.
In an email shown as evidence today Hartnett stated, “The risks here are major embarrassment to the [chancellor of the Exchequer], HMRC, the [large business service of the HMRC], you and me, not least if GS withdraw from the code.”
In addition, just a week before George Osborne had publicly announced the government was making a concerted effort to tackle tax avoidance by big banks, drawing up a code of practice on tax.
Ingrid Simler QC, acting for UK Uncut, told the court “this is the most reliable piece of evidence the court has” that external factors would have influenced the decision.
Adding that, “at the very least he (Hartnett) should not have taken part” in the final agreement made on the 9 of December as his “personal reputation would have been on his mind.”
In Hartnett’s witness statement, he said that “Goldman Sachs had been involved in tax avoidance in the past and we regarded their signing of the Code as a valuable step in securing improved tax behaviour from them. This would have been under threat had we reneged on the settlement (they said they would withdraw from the Code if HMRC reopened the settlement).”
Simler stated it is a “black and white” avoidance case in which all tax should have been paid back and that HMRC was “horse-trading” with Goldman on interest and NIC owed.
UK Uncut also referred to a leaked email involving Amyas Morse, head of the National Audit Office (NAO) and former HMRC Hartnett, that it said appeared to undermine the judge-led inquiry by the
James Eadie QC for HMRC
It aims to wound rather than strike
NAO. It was sent before the process began but said the review would find "nothing of substance".
The email, which was marked "private and confidential – please do not pass on to anyone without coming back to me", was sent by Hartnett on 15 December 2011 to 10 senior HMRC officials.
James Eadie QC, representing HMRC, pounced upon this inference claiming it is “wholly inappropriate to second guess” the judgements of a “respected public official”.
Eadie mounted the defence of HMRC by arguing that the claim was brought “against a backdrop of cosy backroom deals” but that stance is now “untenable following the NAO report”. He said the NAO had access to all information needed to make a judgement, unlike the Public Accounts Committee, and as such had determined the deal “represented good value for taxpayers.”
He suggested that UK Uncut’s case did not have “any legal significance” and that it aims to “wound rather than strike”.
The judicial review continues. A judgment is expected in the next couple of weeks.
Speaking outside court, Murray Worthy, director of UK Uncut Legal Action said, “We believe that by having this deal declared unlawful it will stop HMRC making similar deals in the future.
“It is very important for people to see that there are clear rules, that there are no favourites and that no one is getting treated better than others. That is more important than handing out sweetheart deals to individual companies for political benefit, which is what we have seen here.”