Tax chief faces grilling over £10m 'gift' for Goldman Sachs

Parliament to question HMRC over deal

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The head of HM Revenue & Customs (HMRC) will today be quizzed by MPs over a deal which allegedly allowed Goldman Sachs to escape £10m in interest payments on a failed tax avoidance scheme.

Leaked documents claim that Dave Hartnett, the permanent secretary for tax at HMRC, personally approved the agreement with the Wall Street bank last December.

HMRC strongly disputes the charges, but Mr Hartnett will be questioned this afternoon by the Commons Public Accounts Committee. This week documents were leaked to Private Eye, suggesting the committee's previous chairman, Edward Leigh, was misled when he was told it would be illegal to reveal details of such cases to Parliament. Mr Leigh said: "It just underlines the absurd culture of secrecy that still pervades Whitehall."

Mr Hartnett also refused to give the facts about the Goldman Sachs affair to Tory MP Jesse Norman, when he raised the issue on the Treasury Select Committee last month, claiming disclosure would be illegal. The £10m "gift" for Goldman Sachs came after a prolonged attempt by the American company to avoid paying National Insurance on huge bonuses for its bankers working in London. The amount was relatively small beer for the bank, whose employees received £9.5bn in pay and bonuses last year.

In the 1990s, Goldman Sachs set up an offshore company in the British Virgin Islands. Goldman Sachs Services Ltd supposedly employed all of Goldman's London bankers, who were then "seconded" to work there.

The device was allegedly designed to conceal the scale of the bonuses. In 2009, Judge David Williams said it was "a way of keeping information about the GS accounts and payroll out of the public domain and confidential". The bank also sought to escape paying its share of UK National Insurance on the six-figure bonuses.

Court documents show that a typical bonus to one of its junior bankers was £143,000 in 1998 and £191,000 the following year.

The firm, along with 21 investment banks and other companies, purchased blueprints for an avoidance scheme called an employee benefit trust and the bonuses were indirectly invested into elaborate share option schemes.

It took HMRC until 2005 to demonstrate in court that the trusts were illegitimate tax avoidance devices. The 21 other firms gave in and paid what they owed HMRC.

But Goldman Sachs refused to meet its £30.81m bill. Instead its lawyers fought the ruling through the courts and were accused of using obstructive delaying tactics. By 2010, according to a public judgment, the unpaid bill with accumulated interest had grown to £40m.

HMRC said in a statement that the picture painted was incomplete and therefore "fundamentally flawed", but that taxpayer confidentiality prevented them saying anything more.

A spokesman added: "Dave Hartnett's long career in the tax service has been built on ensuring the right tax is paid by large businesses and individuals alike. HMRC does not do 'sweetheart' deals." Goldman Sachs declined to comment. Stephen Banyard, HMRC's director general for personal tax, and Simon Bowles, chief finance officer, are also due to attend this afternoon's Commons hearing.

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