Media pressure builds for UK secondary tax on online gambling

Adding to media pressure for a more equitable UK online gambling playing field this week is an article in The Independent newspaper quoting top betting company executives.

The British government is currently considering the imposition of a new law requiring offshore internet gambling operators to take out UK licensing and pay UK taxes if they access the British market .

The Independent claims that offshore gambling operations are estimated to cost the UK fiscus GBP 300 million a year in tax revenue

The newspaper claims that the last major gambling company with an onshore sportsbook is set to quit Britain if the government fails to equalise the tax paid by offshore operations with what UK firms pay.

Gala Coral’s group chief executive Carl Leaver told the newspaper that he would find such a decision “sad”, but warned that onshore betting taxes are crippling his business against rivals.

Leaver revealed that the location of his group’s online sportsbook is now under “constant review”.

“Right now there is no competitive advantage to being onshore other than, perhaps, securing a better relationship with racing and even that is debatable,” he said.

Leaver is also annoyed that betting shops “which create jobs in the UK and pay rent on the high street” are crippled by taxes which “remote” rivals don’t face.

“That seems a topsy turvy situation because offshore creates no employment,” he told The Independent. “We want to see all offshore gaming taxed in the same way and at the same level as onshore. If not, then there is no way we could continue to see ourselves disadvantaged in this way.”

Coral and Bet365 are the only two major firms left in the UK that have not ‘exported’ their internet gambling operations to low tax regimes like Gibraltar, Malta and the Isle of Man.

Tory MP Matt Hancock is already moving on the issue, presenting a bill based on the location of the punter rather than where the operators or servers are located .

Acceptance of such a precedent could have major legal implications for online operators who have long asserted that the act of gambling takes place on their servers and not at the point of consumption – the punter’s computer.

Last year a South African high court ruled that the player’s location was the decider, and not the operator’s base of activity.

Hancock’s bill has its second reading on 30 March, although as a “10-minute rule bill” it faces an uphill struggle for Parliamentary time.

“The Bill (would) bring the main offshore gambling platforms onshore by making it illegal for them to accept bets without paying tax and levy. It will be classified as a bet in the UK if that is where the punter is,” the politician says.

If the law is passed, enforcement action could be taken that could include halting illegal advertising in the UK, and placing the threat of prosecution over the heads of operators who choose not to obey, should they ever enter Britain.

The Department for Culture Media and Sport, which has Cabinet responsibility for UK gambling, says the government supports the intention to regulate remote gambling on a “point of consumption basis” and is “committed to bringing forward a Government Bill as soon as Parliamentary time allows”.

That may not be this year – or even next year. However, if Hancock’s bill passes its second reading and reaches committee stage the ministry says it will be supported “albeit with a few technical amendments”.

The other side of the coin is presented by those companies that have already moved offshore in order to secure a more competitive advantage against other remote gaming operators.

Ciaran O’Brien, corporate affairs director at Ladbrokes, told the newspaper: “We pay more tax than we retain in profit. The Association of British Bookmakers’ figure for the industry shows that it paid GBP 1 billion in tax and yet retained just GBP 600 million in profit. We are working harder for the government than we are for ourselves.

“Let’s say you set a very high tax rate. How would you enforce it? There will be a lot of people outside the net. The experience of the government here when they extended the gross profits tax at 15 percent (in 2005) was the death knell for any operators onshore.”

Even when advertising gambling was banned under the old Gaming Board, ads still appeared for offshore online casinos, O’Brien argues, calling for a proper review and a sensibly  low rate for remote gaming to bring everyone into the tax net, at point of consumption.

The other option might be a flat rate of a notional 10 percent for all betting, he suggested.

Gala Coral’s Leaver appeared to agree with the latter: “We would like to see some of the money that the government recovers from offshore gambling invested in easing the burden on outlets like betting shops and bingo halls which create jobs,” he said.

Offshore operator Bodog is swimming against the offshore current, it appears. CEO Patrik Selin told The Independent that his company was moving into the UK, which he said has the lowest betting taxes in Europe

“All over Europe you are seeing a trend to make taxes on gambling higher,” Selin said. “Different countries are doing different things to enforce this. Some are trying to get ISPs (internet service providers) to block gaming, others to get the banks to stop dealing with betting sites.

“The UK has the best tax. The lowest of all in Europe. There are benefits from being onshore too. You are more credible and there are more marketing tools, deals with newspapers, football clubs. It is also easier to employ talent.”

The British Horse Racing Authority could throw a spanner in the works, and is continually looking to betting companies for subsidies like the voluntary horse racing levy.

Spokesman Will Lambe claims there could be a problem in making the levy part of a “point of sale” gambling tax; it could violate EU rules on state aid for industry.

“Certainly it is clear that the regulatory system for remote betting platforms isn’t working… but there are state aid concerns if you bring in secondary licencing (along with a new tax),” he said in a view supported by William Hill plc, a major contributor to the levy.

Will Hill also had an opinion on secondary taxation generally, asserting: “There is now a significant body of evidence… which shows that a controlled closing of the UK market at a double-figure tax rate with weak enforcement will be bad for customers, bad for competition and would produce limited tax yield.”

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