NEW UK GAMBLING TAXES COULD SERIOUSLY IMPACT OFFSHORE OPERATORS
Posted 2/28/11 : he industry awaits the outcome of UK Minister's consultation
The UK government's decision last year to enquire into the situation where offshore gambling companies operated in the UK market without local taxation or licensing being necessary is attracting growing interest.
The reason is the forthcoming publication of the reslts of the government's consultation process, which is believed to be only weeks away.
Examining the problem this week, the publication This is Money reported tthat offshore operators fear that their almost tax-free era could be drawing to a close.
Although major companies like Sportingbet, Party-Gaming, 888.com, William Hill and Ladbrokes invest millions in promoting their offerings to UK gamblers through sports sponsorships and advertising, those millions of pounds are available only because of the generous tax breaks enjoyed in offshore tax havens – from the Channel Islands to the Isle of Man and from Gibraltar to Malta, the newspaper explains.
"None of the companies pays more than one percent tax compared with the 15 percent they would face on the British mainland," This is Money notes, pointing out that because many of the offshore havens are "white-listed" by the UK government, they have full access to the UK media and advertising.
However, the publication opines, this happy situation could be about to come to an end following the government's enquiry and the publication – probably within the next few weeks – of the Department for Culture, Media and Sport report and recommendations on the issue.
The report is expected to recommend that, in line with other European countries, every offshore gaming company will have to obtain a British-specific licence on top of that which it already holds from an acceptable offshore gambling jurisdiction.
That has serious implications for both operators and jurisdictions, because there will almost inevitably be tax implications as well as ‘secondary' licensing costs. Whilst most of the "white listed" jurisdictions have regulations that are broadly in line with UK Gambling Commission requirements, and the cost of a secondary licence is unlikely to scare away well established and successful companies, the prospect of additional taxes introduces real economic and competitiveness concerns.
"People are assuming that the licensing regulation will lead to changes in taxation,' one industry source told This Is Money.”It's the thin end of a taxation wedge. At the moment, offshore gambling operators pay next to nothing in tax, which is why they went offshore in the first place. But there is an expectation that the rate could be put up to match the 15 percent which UK-based operators currently pay. We'd be amazed if the Treasury wasn't already looking at this."
Ian Burke, chief executive of Rank Group agreed, telling the publication: "Many European markets are moving to regulating and taxing online gaming and it's inevitable that the UK government will look at changing the offshore tax regime."
The effect of paying 15 percent rather than one percent could be highly significant – companies could be hit with tax bills amounting to millions, depending on how big their offshore operations are.
Burke warned: "Weaker companies would disappear as their business model would no longer be sustainable."
This Is Money quotes the chief executive of trade group the Remote Gambling Association, Clive Hawkswood, who said any tax changes would "clearly hit companies hard".
"Some online casinos have a payout rate of about 97 percent so there is no room to withstand such a jump in tax.," said Hawkswood, opining that in order to survive companies may have to cut back dramatically on marketing, which has been lucrative for the UK media and sports industries.
The UK online gaming sector is worth some GBP1.5 billion a year, and with some companies spending around 30 percent of total revenues on advertising, there is a lot at stake, he pointed out.
