UK Experts Doubtful Re: Remote Gaming Tax

Published: Tuesday, February 27, 2007 Online-Casinos.com

UK TAX EXPERTS DOUBTFUL ABOUT 2-3 PERCENT REMOTE GAMING TAXATION

Effective tax rates will mean online gambling companies leaving rather than staying says one analyst

Some taxation experts are of the opinion that hopes for a remote gaming tax of only 2 to 3 percent for UK licensed remote gaming licensees are unlikely to materialise.

Taxation specialists were quoted in the British media this week as having a more pessimistic view, pointing out that companies that actually moved to the UK would face corporation tax of 30 percent as well as VAT of 17.5 percent and National Insurance contributions of 12.8 percent in addition to the license fees.

One analyst said that effectively delivered a rate of tax close to 50 percent before gaming duty is even factored in.

Gaming tax expert Stephen Hignett of the London-based law firm Olswang was quoted as saying: "My clients are still thinking about moving out rather than moving to the UK. Just because the gaming duty has gone down doesn't mean there is going to be a huge change - you are still comparing effective tax rates of zero in Gibraltar with 40 percent or 50 percent in the UK."

The obvious counter argument is that offshore operators may take up a UK license whilst continuing to operate in offshore tax havens, but experts said that was an unlikely provision. While companies that operate remote gaming businesses will be able to relocate to Britain in September and obtain a license to operate under the 2005 Gambling Act, the terms of the Act (section 89 subsection II) already make it clear that in order to obtain a license an operator of remote gambling equipment used by the licensee must be located in Great Britain, and any exemptions to that condition are by no means certain to be granted. Hignett notes that: "It's not as simple as being in Antigua and getting licensed in the UK, unless you have a very bespoke exemption."

On the wish list of many wannabe UK licensees is the possibility that the UK government may be willing to exempt remote gambling firms from VAT. Gambling is currently a VAT-exempt service so gambling firms are unable to recover the VAT they pay.

"If betting companies were allowed to recover input VAT it would eliminate one of their biggest costs" agrees Hignett, "But I have never heard anything about a VAT scheme for remote operators, and UK VAT law has to fall within the 1977 6th European Council Directive. It would be extremely difficult to square that with the treatment of other zero-rated sectors."

With the currently uncertain position regarding UK taxation on online gambling licensees, there is a need for clarity and soon. Beryl Brown, Director of Policy and Communications at he UK Gambling Commission, seems to realise this, and told an Olswang-organised gambling conference earlier this month that the Gambling Commission had received just ten applications for remote licenses ahead of their April 27th deadline.

One indicator may be the major betting group Sportingbet plc, which is reportedly already well advanced in its plans to relocate to Ireland, a domicile also chosen recently by the Canadian turnkey provider Cryptologic.

UK land-based casinos currently pay tax of up to 40 percent depending on their size, and to grant remote casinos a much lower rate simply because they are online would fall foul of EU rules on freedom of establishment, claims Hignett.

"How are you going to discriminate between bricks and mortar and remote taxes?" he asks. "There will be huge problems in enforcing that under European rules. Already European governments have trouble enforcing their domestic tax rules and this would be very hard to explain."