UK to tax offshore online gaming outlets


Dormant account
Apr 4, 2005
Announced in today's budget:

'The current taxation regime for remote gambling has allowed operators to avoid paying UK gambling duties by basing their operations abroad. To broaden the tax base and provide a fairer basis for competition between UK and overseas remote gambling operators, Budget 2012 announces that the Government will move to a tax regime that ensures operators anywhere in the world pay gambling duties on gross profits generated from customers based in the UK. This is in line with the actions of several other European countries.'

'2.146 Remote gambling taxation – The Government will introduce a place of consumption based taxation regime for remote gambling, subject to consultation on the detail. (future Finance Bill) (24)'

Future means not before 2013, and maybe not then. Edit: this is pencilled in for 2014-15
No real surprises on this - the industry knew it was coming, based on the point of consumption definition...but it's nice to know it will take awhile to get it into place, along with secondary licensing.
New duty on gaming machines at a standard rate of 20% and a lower rate for low-prize machines of 5% of net takings so instead of paying an annual licence for a slot machine, companies now have to pay a percentage of the net takings. Nice little moneymaker for the government from casinos
I know I'm dreaming, but .... if they're going to tax these offshore joints, I hope they use some of that money toward player protection and hire some people to work in regulation that have some cajones and know something about online gambling.
This is all part of the UK government's move to get its cut from online gambling operators who have moved or are located outside the UK (mainly due to the 15 percent tax imposed by former Chancellor Gordon Brown)

Unfortunately I have doubts whether it is really going to benefit the player. The other half of this initiative - now that it has been established that as far as the UK is concerned gambling takes place at the point of consumption ie the player's device - is that operators wishing to access the British market will have to take out a 'secondary licence' with the UK Gambling Commission.

At first blush that might appear to be a good thing, but imo the Commission has so far shown little sign of recognising the online player as of paramount importance, and it has not really made a name for itself in terms of sorting out player disputes. We can only hope that their attitude and sensitivity improves.

I think much depends on how successful the Brits are at excluding operators who simply don't give a toss about the new regime and access the UK market illegally.

The reaction of the big boys in the industry who have moved operations to places like Gibraltar is going to be interesting too - they will continue to lobby for a reasonable tax regime, which was the reason they moved offshore in the first place.
I think the "consumption point" definition will catch on with other jurisdictions, because it hamstrings one of the fundamental defences that the industry has used for years - that gambling takes place on the servers, which are in another county and licensed there.

There's already one recent international precedent - the South African North Gauteng High Court case aginst Casino Enterprises of Swaziland.
Huh. I always thought, legally, the location the data was held (physically speaking) to be its location for this sort of thing.

If they change it for betting and gambling- would it work the same way on the stock exchange? Something of a gamble there, too, isn't it? :p
If they change it for betting and gambling- would it work the same way on the stock exchange? Something of a gamble there, too, isn't it? :p

The major differences here are that the gaming tax is on companies offering the service, not the punter (even though ultimately they are the ones that fund it!). Also, punters are already taxed on profits made from share trading in the UK.

I'm actually a supporter of taxing "luxury" items instead of life's necessities, so while the new proposals may affect me both as a punter and as an affiliate, if it means less tax on essential items I'm all for it, as long as it's fairly applied.
The problem is going to be enforcement. Whilst the likes of Microgaming are likely to insist that their licensees abide by the regime, I can't see how they can stop the likes of Virtual Group from carrying on as before. They will just switch to the same tactics as used with the US market in order to evade blocks on the transactions, and the UK government will have trouble forcing Costa Rica and Panama to cooperate.

On the other hand, it will make those offshore regulators that cared only about the money suffer, because casinos only used them because of the low tax rates. If they have to pay UK tax anyway, they might as well locate in a larger country, and get better internet bandwidth for their servers. It may even be better for them to locate in the UK, rather than pay TWO sets of tax, one to the UK, and one to their jurisdiction. They may well find that the UK tax will be set at a level similar to that recently set for land casinos, which is 20% of net revenue. They may get a lower rate in recognition of the fact that they can dodge the tax more easily than a land casino by locating to a country that doesn't care that UK laws are broken.

Land machines in the UK tend to have an RTP of 90%, which I have seen on the £500 jackpot ones. Online casinos may bring their own RTP down to that level once they have to start paying the tax, and they may offer less in the way of bonuses and other promotions.

One advantage for players is that the UK gambling commission would be able to pull these secondary licenses for any misbehaviour, and citizens would expect the same level of protection as they get with other types of businesses and land casinos. Adverse rulings by Trading Standards and the ASA would put pressure on the UK commission to act, or be seen to be in it for the money, rather than the protection of players.

With over 2 years notice, and a consultation, there is NO excuse for any operator to shut UK players out with no notice as they did in Spain. When a start date is announced, operators will have enough time to decide whether to stay with the UK and pay up, or get out of the market in an orderly manner.

The UK government are unlikely to force through measures that they know will lead to a mass exodus from the UK market, rather than compliance and payment of tax. This wold leave the UK wide open to the rogues, and the UK government would end up spending money trying to block them, and have nothing coming in from legal operations.

I think that the UK government will end up publishing a blacklist of those rogue operators that refuse to stop accepting UK players whilst not paying any tax, hoping that getting players to fear playing there would be more effective than trying to block access and transactions, something the US government have spent years failing to achieve.
I agree that enforcement will be key, and that is a very difficult nut to crack unless more innovative and faster tactics can be devised to hammer illegal operators.

The offshore operations of the big - and largely reputable and publicly listed - UK online gambling groups are unlikely to act illegally, but there are plenty of other operators and their software providers out there who will be prepared to take the risk, and draconian measures like ISP blocks and interfereing with financial transactions are unlikely to be popular in a free society like the UK.

Still, politicians and bureaucrats live in a world of their own, so who knows what they will come up with.

Moving to the UK is likely to be expensive in all sorts of ways, and it will be interesting to see if the tax arrangement includes a horseracing levy liability for online companies. Betfair has paid this voluntarily, and the land gambling operators are going to want that applied to online operators as well.

However, until the full impact of this tax and licensing initiative are known it is difficult to quantify costs and whether it pays to actually move to the UK or simply stay where you are, achieve secondary licensing and pay the UK tax - that too will add costs to operators.

I would guess there will be plenty of back-and-forth between the EEC offshore regulators and the UK authorities as they try to protect their pockets, too.
Excerpt from the Treasury documentation may be useful:

Remote gambling taxation

Measure description

This measure reforms the taxation of remote gambling by moving to a place of consumption
based regime.

Remote gambling is currently taxed on the basis of operator location. Under a
place of consumption based system, all operators will be liable to tax on the gross remote
gambling profits generated from UK-based customers.

Conversely, UK-based operators will no longer be liable to gambling taxes on revenues from
non-UK customers. The measure is planned to be introduced in December 2014.

Until the place of consumption based taxation regime is implemented, double taxation relief will
ensure that UK-based operators do not incur double taxation on remote gambling supplied to
customers in countries already operating a place of consumption based tax.

The tax base

The remote gambling sector is a new and rapidly growing sector, expected to grow faster than
overall GDP over the forecast period. The size and growth of the tax base is estimated using data
from published accounts, market reports and responses to an informal consultation.

Profits from overseas customers will not be liable to tax, so they are removed from the tax base. Profits
generated from UK customers by operators based overseas are added to the tax base. For 2012-
13 the tax base is estimated to be £2 billion, rising to £3 billion by 2016-17.

The amount of double taxation has been estimated based on informal consultation and HMRC
evidence. The tax base only takes into account UK based operators’ revenue from remote
gambling by consumers in those countries that either already have a place of consumption
based taxation regime in place or have announced an intention to introduce one.

Static costing

The static costing is estimated by multiplying the tax base by the 15 per cent tax rate currently
applied to remote gambling. The estimated remote gambling tax yield collected under the
current system is then subtracted. The amount of double taxation relief claimed will depend on
the profits made by UK based operators in countries with place of consumption based taxation
regimes in place.

Static Exchequer impact (£m)

2012-13 2013-14 2014-15 2015-16 2016-17
Remote Gambling 0 0 +90 +300 +340
Double Taxation Relief -15 -20 -15 0 0

Post-behavioural costing

No significant impact on consumer behaviour is expected at the 15 per cent rate and
compliance levels are expected to be high as the measure will be accompanied by further
supporting legislation.

However there is some uncertainty around compliance and behavioural response from
both consumer and supplier and we assume that 80 per cent of the theoretical yield
is collected.

No behavioural adjustment has been made to the double-taxation relief costing.

Post-behavioural Exchequer impact (£m)

2012-13 2013-14 2014-15 2015-16 2016-17
Remote Gambling 0 0 +70 +240 +270
Double Taxation Relief -15 -20 -15 0 0

Areas of uncertainty

The main uncertainties concern the level of compliance and behavioural response from
consumer and supplier as well as the implementation details to be consulted upon

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