Pressure over 'sweetheart deals' could result in stricter regulation for large companies, expert says

Ian Hyde of Pinsent Masons, the law firm behind Out-Law.com, said "embarrassing failures" in the arrangements HM Revenue and Customs (HMRC) had reached with companies including Goldman Sachs and Vodafone illustrated how its relationship with large firms was coming under increased political scrutiny.

The pressure to be seen to be acting fairly was similar to that faced by bankers as a result of the economic crisis, he said.

"HMRC may think it is doing the best it can but, like bankers, politicians don't believe them. This is likely to adversely affect regulation of all large corporates and make commonsense and a lighter touch scarcer commodities," he said.

On Monday the House of Commons Public Accounts Committee, which is conducting an inquiry into so-called 'sweetheart' tax arrangements, forced HMRC's senior lawyer to answer questions under oath.

General Counsel Anthony Inglese had previously refused to answer the committee's questions on an arrangement with mobile phone company Vodafone, which was uncovered by the Guardian newspaper and Private Eye last year. The publications discovered that the company had settled a tax bill for £1.25 billion, which MPs claimed may have lost the Exchequer "around £8bn".

Under the Parliamentary Witness Oaths Act any witness examined by the House of Commons or its committees can be required to swear an oath. However, this power is rarely used.

Committee Chair Margaret Hodge told Inglese that he had a duty, as a civil servant, not to evade her questions on "issues in the public interest".

Inglese told the committee that he was "not what you'd call a tax lawyer" and could not comment on the specifics of the arrangement. "All I can say is lawyers were involved throughout," he said.

HMRC has also been accused of forgiving investment bank Goldman Sachs between £8 million and £10m in interest on a disputed tax payment. Permanent Secretary for Tax Dave Hartnett initially appeared before the committee last month to answer allegations that he had misled MPs about his involvement in the settlement with the investment bank.

Goldman Sachs had refused to settle its tax debt when the Government closed a tax loophole the bank was using to save money by making remuneration and bonus payments to bankers through an offshore company in the British Virgin Islands. The bank claimed that HMRC had made a technical mistake by assessing its UK operations rather than the offshore subsidiary it used to employ its bankers.

Hartnett told the committee on Monday that an annual bonus had been docked from the employee who made the mistake, but Hodge said that the arrangement had resulted in "huge reputational damage" to HMRC.

She said that it showed that large companies and ordinary taxpayers were "unequal in front of the law".

"Every week, my surgery is full of people who come in absolutely desperate... because, usually, there was a mistake by HMRC. These are poor people living on the edge, and it feels so wrong that nobody there thinks, 'We want to get the best we can out of them'... but when you are talking about the Vodafones or the Goldman Sachses, we have got to have a relationship, we have to come to a deal and it does not matter if £10 million goes missing," she said.

Senior civil servant Sir Gus O'Donnell, who also appeared before the committee, defended Hartnett's approach to settlement. Without HMRC's work "we would be in a really bad situation", he said.

However, he agreed with Hodge that there had to be a "proper system of accountability" to Parliament for future large settlements.