'Steelgate' Tax Controversy Deepens

by Jason Gorringe, Tax-News.com, London

20 February 2002

A Guardian report published on Tuesday has revealed that the Indian businessman at the centre of what has been dubbed the 'steelgate' scandal in the United Kingdom pays little income tax in Britain, taking advantage of a loophole which the Labour Government pledged to close prior to the 1997 general election.

Controversy originally arose around Labour Party contributor Lakshmi Mittal when it was revealed that Prime Minister Tony Blair had written to the Romanian government in an attempt to secure a deal on a Romanian steelworks for Mr Mittal's company, LNM.

The Government claimed that Mr Blair's actions were a legitimate attempt to bolster British business abroad, but it was subsequently revealed that although LNM is nominally a UK company, the vast majority of its staff and operations are located in the Netherlands Antilles, a low tax jurisdiction in the Caribbean.

The Guardian has since revealed that despite being (for the purposes of making donations to the Labour party) a British citizen, Mr Mittal is, for the purposes of taxation, an Indian national temporarily residing in the UK, which means that only income earned in Britain can be taxed by the Inland Revenue. The majority of his £1-2 billion personal fortune is sheltered offshore, and his £6 million North London house is owned by an offshore company.

Although this is by no means an unusual situation among wealthy businessmen, the high profile nature of the case is likely to cause additional embarassment for the Government, as is the fact that prior to coming to power in 1997, the Labour Party had pledged to outlaw the tax loophole.

'Taxation of non-residents, non-domiciles and those with offshore accounts should be overhauled,' the party commented at the time. 'It is indefensible that a very wealthy few are able to live and work in Britain without making a fair contribution through taxation.'

However, despite being vociferous in its criticism of the Tory Party, which it accused of maintaining the loophole in order to solicit political donations from wealthy Greek shipowners and Indian millionaires, soon after it came to power, Labour shelved plans to overhaul non-resident taxation.

Speaking to the Guardian yesterday, commercial lawyer David Mills mused that: 'No other country that I know of gives its visitor residents such special treatment.' He added that the tax treatment of millionaire non-residents: 'doesn't seem quite right, somehow, particularly when they can well afford to make a reasonable contribution to the cost of making Britain the nice place to live they evidently think it is.'

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