By Estelle Shirbon
LONDON (Reuters) - Britain's tax authority faces a court challenge on Thursday over a deal with Goldman Sachs worth an estimated 10 million pounds ($15.5 million) to the U.S. bank, a case aimed at pressuring the government into tougher action against corporate tax avoidance.
The challenge by activist group UK Uncut Legal Action stems from public anger in Britain about how big and powerful firms succeed in paying less tax than many ordinary people struggling to cope with a stagnating economy and government spending cuts.
The case concerns a settlement reached in 2010 between Goldman Sachs and the tax authority (HMRC), to end a long-running dispute over a now banned tax avoidance scheme involving the payment of bonuses to UK staff via an offshore tax haven.
UK Uncut Legal Action wants the High Court to declare the settlement, which allowed Goldman Sachs to pay the principal it owed but not the interest that had accrued during a five-year battle with HMRC, as unlawful.
The activist group labels the settlement a "sweetheart deal", a term rejected by the tax authority.
The risk for Goldman Sachs is further damage to its image in Britain after a public outcry in January caused it to scrap plans to delay paying bonuses to its bankers to make the most of an income tax cut for high earners.
In financial terms, the disputed $15 million is a drop in the ocean for a bank that paid its employees $12.9 billion in compensation and benefits last year.
"At a time when the government is making huge, unjust cuts to public spending, the rich must pay their fair share," said Murray Worthy, director of UK Uncut Legal Action.
The High Court hearing into the Goldman Sachs deal is a judicial review expected to last one day. The court will reserve judgment until a later date. Goldman Sachs, which will not be an active participant in the case, declined to comment.
At a time of budget austerity, revelations about the low tax bills of companies ranging from Vodafone to Starbucks have caused widespread outrage in Britain, putting pressure on the Conservative-Liberal Democrat coalition government to act.
Finance minister George Osborne has called aggressive tax avoidance "morally repugnant" but critics say his new General Anti-Avoidance Rule is not enough.
Asked to comment on the case, HMRC pointed to a 2012 report by the National Audit Office (NAO) that said five big business tax settlements including the Goldman deal were "reasonable" in that HMRC may have received less if it had litigated and lost.
($1 = 0.6425 British pounds)
(Reporting by Estelle Shirbon; additional reporting by Lauren LaCapra in New York; Editing by Elaine Hardcastle)