LONDON - A court case in Britain involving Goldman Sachs is drawing public attention to the tax breaks that the British government has tried to lure corporations.
At a hearing on Thursday, an activist group campaigning against tax avoidance programs called UK Uncut asked asking the court to review the circumstances leading up to a deal struck in 2010 between Goldman Sachs and British tax authorities. Under the deal, Goldman allowed to avoid as much as £20 million ($31 million) in interest on unpaid taxes.
The court case is adding pressure on large corporations that have attracted public anger for using tax avoidance programs to cut their tax bills, costing Britain much-needed revenue. A government report published at the end of 2011 concluded that British tax officials were treating big businesses too favorably with so-called sweetheart deals often struck at expensive restaurants or in secret.
The activist group has argued that the deal with Goldman was partly struck to avoid personal embarrassment to the finance ministry and a top tax official.
At the hearing at the Royal Courts of Justice, Ingrid Simler, a lawyer at law firm Leigh Day & Company representing UK Uncut, said that the tax authorities failed to apply their policy by allowing Goldman Sachs to forgo the payment.
Goldman Sachs is not a defendant in the case, but in court documents, the activist group says that when Goldman Sachs was initially told to pay the interest “it responded aggressively.†The group claims Goldman “went off the deep end†and alleged that the tax official acted in “extreme bad faith†by asking the firm to pay interest.
At a meeting at Goldman Sachs’s offices in November 2010 tax authorities agreed Goldman would not be required to pay interest on the taxes if it repays the taxes it owes from the program.
Ms. Simler cited an e-mail from December 2010 in which David Hartnett, who was permanent secretary for tax at the time, wrote that “the risks here are major embarrassment to the Chancellor of the Exchequer, Her Majesty’s Revenue and Customs, the large business service of the H.M.R.C., you and me.â€
The decision was based on “irrelevant considerations†such as reputational risks to the government, and should be declared unlawful by the court, Ms. Simler argued.
Mr. Hartnett acknowledged at a Parliamentary committee in September that tax officials had failed to follow correct procedures in two major tax deals.
Like many other banks, Goldman Sachs took advantage of tax breaks in the late 1990s to avoid paying national insurance contributions on bonuses it paid to staff in London. Because the plan was ineffective, all banks except Goldman Sachs decided to settle with the tax authorities, UK Uncut argued in court documents.
If the court agrees to a judicial review, then it can order the government to reconsider an action. But the government body is allowed to reach the same conclusion as long as proper procedures are followed.
The hearing continues Friday.
