An expensive UK gambling act debacle

Readers must have noticed that the UK Gambling (Licensing and Advertising) Act 2014, planned to come into force this month, has been delayed by a month due to a High Court challenge from the Gibraltar Betting and Gaming Association (GBGA) that seeks to overturn the new law.

The GBGA has argued that the Act is “unlawful, because it is an illegitimate, disproportionate and discriminatory interference with the right to free movement of services … and is irrational.” Gibraltar Betting and Gambling Association pointed out that the new law constitutes an unfair, disproportionate interference with the right freely to provide services.

Market analysts see the legal steps of GBGA as a valiant attempt, however it will not be crowned with success. Simply put the UK government had conceived this law to regulate all remote operators, including online poker rooms. If implemented they must hold a UK gambling licence if they wish to continue to serve players in the UK.

A companion bill, set to take effect on December 1, colloquially styled “Point of Consumption tax”, imposes a heavy 15% charge on gaming duty for all bets taken on UK customers. The aim of the new approach is therefore to provide a fairer tax system which should endorse and avoid that, as currently the online gambling operators have the opportunity to evade the British tax by transferring their registered office in overseas locations such as Gibraltar, Malta, Channel Islands and Caribbean.

Through the upcoming Point of Consumption Regulation (PoC), the British gaming commission aims to improve the British gaming structure. Nevertheless many events that took place are causing hiccups in the implementation of the regulation. Naturally licensed operators in Malta have been burdened with this additional tax and more costs to comply with an onerous application procedure. It is too early to assess the effect on the local remote gaming industry which is conveniently targeting the vast British market since the early days in 2014 when the Lotteries and Gaming Authority approved gambling licences to a coterie of foreign operators.

Recently, players must have probably noticed the big change in the online gambling industry in the UK as many operators are backing out of this respective market due to the new British gaming law that will come into force soon. In 2012, the British government published the reform in the gaming tax, which is affecting online gambling operators with the “place of the consumer” in respect of the tax.

This provision will mean that online gambling operators will have to pay tax on the gross receipts generated by British customers, no matter where the operator itself has its headquarters. This statutory change also implies that everybody who wants to participate in the UK gambling market needs to have a licence.

According to the chairman and CEO of the UK Gambling Commission, Jenny Williams, this reform has already resulted in many operators applying for the UK gaming licence and they are expecting an inflow of more than 150 applications for the necessary gaming licence. Williams asserted that preference will naturally be given to domestic applicants.

She further explained that although the new legislation needed to be checked by the Gibraltar Betting and Gaming Association (GBGA), at this time they cannot imagine any complications that would delay this process.

Williams explained further: “Of course, nothing is certain, but as far as we can tell, we would be extremely surprised if the process would procrastinate. It’s full steam ahead. It would not be fair for those who have invested a lot of time in preparation, to be ready at the right time, to keep the process result back now.” But as they say, only time will tell as recently it turned out that Williams was not right with her estimates after all. 

Williams continued that the UK Gambling Commission was concerned about the applicants, who offer their products worldwide, as this could constitute a violation of provisions of the other countries. As an example, Williams quoted Sportsbook from the USA whereby she explained, “I think one of the main reasons why we’ve decided to take a PoC regime change, is that we cannot perform an effective licensing, without having access to the operators or knowledge of their operation.” Already in the first half of last year, the British government announced that one had to rethink the existing tax law in respect of online gambling.

The prevailing conditions in the market are too different for domestic and foreign bookmakers, so in the past there was a distortion of competition. Previously, only domestic companies were asked to pay, thus British bookmakers had to pay high taxes to be allowed to present their offers in the strictly regulated market.

Some providers licensed in overseas locations already feel the consequences and announced their retreat from the UK market before the new law came into force. In fact, All Slots, All Jackpots and GoWild have already pulled from the UK market. Others, however, are currently in the application process for a UK licence. Reasons for changing the corporate headquarters were smoothed out in the new law. Until now foreign suppliers had a tax exemption. This was one reason why many bookmakers who were incorporated in the United Kingdom operated from Gibraltar or Malta as finally the corporation tax collected is comparatively low.

A big example in this case is Betfair. The management of Betfair, founded in the year 2000 in the UK, said it expected to save £20 million a year as a result of the switch to an offshore base in Gibraltar although it still runs a small operation in Malta.  Betfair paid 15 per cent gaming tax on gross profit from betting, but this dropped to 1 per cent following the move.

Furthermore Betfair asserted that they were also looking into the possibility to avoid the so-called “double taxation” which it currently faces under UK tax. The tax should (unless blocked by the legal protest from Gibraltar) be levied after December 1 this year, obliging 150 operators to apply for temporary licences and to start moving their customers to the new British platform.

Many companies have already contacted their clients, to inform them about the new changes. As mentioned, there are also some providers who have decided to pull back from the UK market and to focus on other markets as the UK gaming law of 2005 states that it is allowed to the operators to seek licence in more than one jurisdiction.

Regrettably unless repealed, the new gaming law will also have implications for online sports betting providers as well as online casinos, which will need to have the United Kingdom licences in order to be allowed to accept bets from UK players. Because of these changes considerable costs have been forced upon operators to comply and this amounts to millions which in the end has to be charged to UK players in higher fees.

Let us for a moment compare the situation in UK with that prevailing in Germany, where in the last few weeks one could notice some bookmakers pulling out from such markets. Greedy governments which squeeze more juice from betting operators find that when imposing exorbitant taxes the burden is simply not sustained by many operators or it becomes too complicated to pass to the customers. Since the new tax law specifies the location of the consumer, some bookmakers could possible pull back also from the British gambling market.

A very recent example is the Stoke-based bookmakers Bet365. They have relocated their online gambling operations to Gibraltar in a bid to streamline their corporate structure. The shift, announced last week, will regroup Bet365’s international online business under one roof and under one licensing regime.

Bet365 needs no introduction in the gaming world. They are privately held and very successful having initially moved its online casino operations to Gibraltar in 2007 but had maintained its online sportsbook within the UK.

Because it left for Gibraltar Bet365 would be better placed than most of its competitors to avoid the impact of the UK’s new 15% point-of-consumption tax if the legal protest by GBGA is successful.

To conclude, some observers appreciate that the UK government’s genuine aim was to create an equal tax burden for both land based and online gambling operators, but it is doubtful if this altruistic intention was a proper justification for causing such an upheaval. This debacle has upset many players. We shall see by next Christmas if overseas providers do not pull back from the UK market, the treasury can rejoice in pocketing more than £300 million next year.

Anke Boeckmann is a research assistant in PKF Malta, an audit and business advisory firm