Goldman Sachs Group Inc. (GS:US)’s deal with the U.K. government that may have saved the investment bank as much as 20 million pounds ($30.6 million) on its taxes didn’t break any laws, a judge ruled.
Her Majesty’s Revenue & Customs’s decision to reduce the New York-based bank’s tax bill was properly conducted, a judge in London ruled today. Still, Judge Andrew Nicol criticized tax officials who considered the potential embarrassment to Chancellor of the Exchequer George Osborne if a deal with Goldman Sachs wasn’t completed.
“The settlement with Goldman Sachs was not a glorious episode in the history of the Revenue,” Nicol said in his written ruling.
The U.K. government has pledged to clamp down on tax-avoidance schemes following widespread media and public anger caused by the amount of corporation tax the likes of Google Inc., Starbucks Corp. (SBUX:US) and Amazon.com Inc. pay in the country. Lawmakers said in a report last month that increased transparency about companies’ tax affairs would build pressure on multinational businesses to “pay a fair share.”
UK Uncut Legal Action, an advocacy group that lobbies for alternatives to government spending cuts, said HMRC reached the agreement with Goldman Sachs on the day Osborne announced a bankers’ code to counter tax avoidance. An HMRC executive said in an e-mail cited by UK Uncut that he was concerned the bank might drop out of the code if the deal was scuttled.
“Obviously while we are deeply disappointed that this deal has not been declared unlawful, the judge’s ruling that top HMRC officials played politics with major tax deals to protect Osborne’s reputation is a major victory in exposing the truth behind these secret deals,” Anna Walker, campaigns director of UK Uncut Legal Action, said in an e-mailed statement.
Goldman Sachs wasn’t involved in the litigation. Fiona Laffan, a London-based spokeswoman for Goldman Sachs, declined to comment.
HMRC said the ruling “puts to rest the fallacy that HMRC is soft on large businesses.”
“The High Court’s judgment confirms what HMRC has always said: that while we made errors in settling the Goldman Sachs dispute, we made the right settlement in the circumstances, and that our decision was both proper and lawful,” HMRC Director General for Business Tax, Jim Harra, said in an e-mailed statement.
UK Uncut said the deal between HMRC and Goldman Sachs revolves around a 2010 meeting between Dave Hartnett, the tax secretary at the time, and the bank’s then-tax director, Mike Housden. Lawyers for UK Uncut said at an earlier hearing that Hartnett overruled advice from lawyers and an internal HMRC review to proceed with the deal.
The deal resulted in the company paying back taxes it owed on National Insurance payments for bankers’ bonuses, while forgoing interest payments. Lawmakers said last year that the amount involved was about 10 million pounds. UK Uncut argues it is close to 20 million pounds.
The case is a judicial review, a legal mechanism that examines the decision-making process of public bodies. While an authority may be ordered to reconsider an action, it may be allowed to draw the same conclusion provided all procedures are correctly followed.
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