UK GOVERNMENT STATEMENT ON E-GAMING IS THOUGHT PROVOKING

8 January 2010

Are the days of the tax advantage coming to an end?

The much anticipated report of the British government's Department of Culture, Media and Sport on Internet gambling (see previous InfoPowa reports) was released this week and will give online gambling operators interested in the UK market plenty to chew on.

Major elements in the government statement relate to the extension of regulations to safeguard UK consumers and generate income for the horse racing industry through levies - long a contentious issue from which online operators have sought to distance themselves.

Operators who have licensed in 'white listed' jurisdictions that permit them to advertise in the UK - jurisdictions such as the Isle of Man, Gibraltar, Alderney, Malta, Tasmania and Antigua - do not presently pay the UK Horserace Betting Levy and do not pay UK tax on wagers.

Several major UK companies have relocated to more tax-friendly jurisdictions in order to effectively compete with offshore rivals, yet still retain the white listing and levy advantages.

Sports minister Gerry Sutcliffe may be about to change this happy situation, as the statement this week indicates. It includes proposals to bring in new licence requirements for overseas-based online gambling firms that want to promote to UK-based customers.

"Online gambling has changed significantly in recent years with many European countries taking new approaches to regulation," Sutcliffe says. "It would be wrong of us to stand still where things are changing around us - especially where the protection of British consumers may be at stake.

"The new system will also ensure that all businesses offering online gambling to our [UK] consumers adhere to our rules - not someone else's. The Gambling Act is already one of the best regulatory frameworks in the world and these changes will ensure that it sets the standard for all online gambling companies that target British consumers."

Sutcliffe added: "In terms of the Horserace Betting Levy, I remain firmly of the view that all operators taking bets on British races should pay their fair share. There is more to do but I am committed to making sure this happens."
The government's intentions will now move to a consultative stage, but as things presently stand online operators currently licensed outside the UK may have to apply for a licence from the British Gambling Commission if they want to advertise or provide gambling services to British consumers.

There are also provisions to combat the recent corruption in sport scares, which require online operators to agree to share information on suspicious betting patterns, something which many companies already undertake voluntarily.

Most reputable jurisdictions under which offshore Internet operators are already licensed include provisions related to the protection of underaged or problem gamblers, but the UK will expect that these are active systems on any applicant site. There is also discussion on the very controversial topic of how online operators licensed under the new proposals can be made to contribute to research and treatment for problem gamblers, something which is already expected of British operators.

Another highly controversial area is how online operators might contribute like their British-located land rivals to the Horserace Betting Levy in the UK.

The initial reaction from major companies to the new initiative has been cautious but cooperative.

Ladbrokes spokesman Ciaran O'Brien said: "Online betting and gaming is a global industry and Ladbrokes has to locate its .com business where it can complete most effectively.

"Ladbrokes continues to exceed UK regulatory standards so we welcome this consultation, which seeks to ensure that UK consumers are appropriately protected from those unregulated operators who fail to meet appropriate standards."

Reporting on the government's statement, The Guardian newspaper observed that the UK is by far the largest online gambling market in Europe and that one of Gordon Brown's last moves as Chancellor was to set a tax rate for internet gambling firms at 15 percent of gross profits.

This resulted in few online poker or casino sites conducting their UK business through a Gambling Commission licence, so as not to pay this relatively high tax rate which they claimed made them uncompetitive in the market. Operators, most of whom are based in Gibraltar, argue the UK tax regime is punitive.

The Guardian goes on to outline Italy's success in pressuring online bookmaking and poker sites to take up Italian gambling licences and pay tax on business with Italian customers at between 2 percent and 5 percent. The newspaper reports that France is preparing legislation which could see a similar regime in place later this year.

A Treasury spokesperson told The Guardian: "The focus of the Department for Culture, Media and Sport (DCMS) review was on the regulation – not taxation – of remote gambling … The Treasury will continue to work with DCMS to ensure that any implications for tax policy, arising from the proposals, are properly considered."

The Conservative party is believed to be supportive of big cuts in online gambling tax rates. They think this would help the UK copy the Italian model and generate considerable revenues.

Whether the new arrangements can be finalised and implemented before the next general election (later this year) is doubtful, but in any case even a change in power to the Conservative Party may not bring a reprieve from what will inevitably be an extra expense for operators doing business in the UK.

Online Casino News Courtesy of Infopowa

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