Goldman Sachs Deal Averted Osborne Embarrassment, Group Says

Goldman Sachs Group Inc. was able to avoid paying as much as 20 million pounds ($31 million) in U.K. taxes as the government fought to shield Chancellor of the Exchequer George Osborne from political embarrassment, an advocacy group said at a London trial.

The group, UK Uncut, said Her Majesty’s Revenue & Customs reached the agreement with Goldman Sachs on the day Osborne announced a bankers’ code to counter tax avoidance. The 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.

“The reputation and standing of officials or of HMRC, and potential embarrassment to a minister, is not a relevant matter to take into account when deciding to waive collection of several million pounds of interest,” Ingrid Simler, a lawyer for UK Uncut, said in filings prepared for a judicial review that started in London today.

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. and Inc. pay in the country. Lawmakers said in a report last week that increased transparency about companies’ tax affairs would build pressure on multinational businesses to “pay a fair share.”

2010 Meeting

UK Uncut, which lobbies for alternatives to government spending cuts, says the deal between HMRC and Goldman revolves around a 2010 meeting between the then tax secretary, Dave Hartnett, and Goldman Sachs’s then tax director, Mike Housden. 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.

While the advocacy group is criticizing the deal, the lawsuit isn’t seeking to overturn it, the HMRC said.

“The only thing they are seeking is declaratory relief and to inform the future,” said James Eadie, a lawyer for the HMRC. “The guts have been ripped out of this litigation.”

Goldman Sachs isn’t involved in the suit and declined to comment, a spokesman in London for the New York-based bank said.

Judicial reviews are 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.

HMRC Review

Lawyers for UK Uncut said today that Hartnett overruled advice from lawyers and an internal HMRC review to proceed with the deal. In a 2010 e-mail, Hartnett expressed concerns that a rejection of the settlement would cause “major embarrassment to the chancellor of the exchequer,” they said in the court filings.

“George Osborne announced the bankers code for tax avoidance with great fanfare, claiming that he was forcing banks to pay their fair share,” Murray Worthy, director of UK Uncut, said in a statement. “Yet on the same day, Goldman Sachs were threatening to withdraw from the code if HMRC forced them to pay the tax they owed.”

Osborne wasn’t involved in the Goldman Sachs negotiations, the U.K. Treasury said.

“Taxpayer confidentiality means that decisions are always made by HMRC without any ministerial knowledge or involvement, ” the Treasury said in an e-mailed statement.

Hartnett was summoned last year to appear before lawmakers after admitting mistakes were made in the negotiations.

The case is: The Queen on the application of UK Uncut Legal Action Ltd. v. Commissioners of Her Majesty’s Revenue And Customs, High Court of Justice, Queen’s Bench Division Administrative Court, No. CO/12618/2011