When Tessa Jowell invited representatives from all over the world to Ascot, to outline how the UK would be at the forefront of shaping international policy and regulatory framework, many came away feeling that although much of what was said was ambitious, it was positive...
The UK had no existing tax regime for online gambling, and for some, lacked a track record of housing the sector. However, others saw this as a benefit. The UK government could build from the ground up, with attractive tax structures aimed at encouraging off-shore operators to relocate and make the UK a hub of online gambling. What’s more, Jowell’s words positioned her government as one that would strive to unite the industry and play a major role in international regulation.
However, the Budget delivered by UK Chancellor Gordon Brown at the end of March seemed to go against all of this, and left the industry with a bad taste in its mouth.
Widespread speculation had been that in order to compete with tax havens that house many online gaming companies, a low remote gaming duty, between two and five per cent, would be introduced. Brown decided that 15 per cent would be the figure. The VAT exemption relating to online gaming participation charges will remain.
BDO Stoy Hayward tax principal Martin Dane described it as ‘breathtakingly high’ and would be more likely to encourage UK-based companies to leave the country as opposed to attract relocation from offshore.
Remote Gambling Association chairman John Coates claimed that the UK had ‘effectively turned its back on the industry.’
“With the additional VAT and corporation tax for most companies, it would be almost impossible for a UK-based operation to compete with offshore businesses, especially those located in other EU jurisdictions,” he said.
Ladbrokes, which has remote gaming operations in Gibraltar, said it would be remaining offshore. Ciaran O’Brien, a spokesman, said of a move onshore: “You will just be disadvantaging yourself against operators in offshore jurisdictions.”
Stephen Hignett, from London law firm Olswang, which specialises in gaming, said that the Budget was bad news for remote gaming operators thinking of setting up in the UK on or after September 1, 2007, but was at least good news for remote gaming operators established outside of the EU who charge commission to customers for playing P2P games such as poker.
“These operators would have had to start accounting for UK VAT on commission paid by UK–based customers had the Government lifted the VAT exemption as had been feared,” he said.
“By setting remote gaming duty at a high level and leaving the VAT exemption for participation charges in place, Gordon Brown has ensured that the gulf between the ‘high’ effective rates of tax paid by operators based in the UK and the ‘low’ effective rates of tax paid by operators based in low-tax offshore remote gambling centres, such as Gibraltar and Alderney, is as wide as it could possibly be.
“In short, by failing to create a suitably attractive tax environment for online gambling companies, the Government’s self-pronounced vision of making the UK a world leader for remote gambling companies now appears to be merely a dream.”
Wayne Lochner, chairman of Betbroker, told iGi that the UK Government had ‘effectively slammed the door in the face of gaming companies and made it clear they are not welcome.’
“Given that most are paying nothing or one per cent in GPT and little in corporate tax why would they consider relocating to the UK and paying 15 per cent GPT and corporation tax.
“In what appears to be a complete volte/face to the Tessa Jowell initiative with her globe trotting to various offshore gaming centres, the government has now said no to online gaming companies being based in the UK.”
Lochner now believes that any proposals to make the UK the centre of the online gambling industry are effectively dead, and has also damaged the reputation of London as a reputable business centre.
“The original proposition was to make the UK a centre of excellence for gaming and gambling,” he says. “Recognising how sports wagering has been fully adopted as a financial market and therefore supports the premise of London being the financial capital of the world, this proposition has now been refuted and, not in a small way, negates the claim that the UK is a centre of excellence for gambling, and even that London is the financial centre of the world.
“Sports wagering and online gambling has been one of, if not the fastest growing financial market in the world over the past five years. How can London profess to be the financial centre of the world if it effectively closes the door to online gaming companies?
“One has to ask why would any government would turn away the enormous tax revenues, additional employment, regulatory control and responsible gaming control - not to mention significant increase to our GDP, that online gaming would bring to this country.
“The answer must lie in a mixture of naivety, arrogance, and ignorance - or do we just say politics?”
However, Professor Richard Lynch, Professor of Strategic Management at Middlesex University in London, believes that the industry “has itself to blame - at least in part.”
“For the last few years, online gaming - along with the UK gambling industry - has had a Labour government sympathetic to the growth of the industry,” he says. “A desire to build the UK as a world leader in online gaming, plans for new large UK casinos and the piloting of new and difficult legislation through the UK’s Parliament.
“Quite naturally, the gambling industry, both on and offshore - welcomed such moves, but it has been too complacent in the face of strong lobbying by the UK’s Conservatives [the opposition party], national press, opinion formers and other vested interests. The gambling industry has mounted an ineffective public relations response and one company has even been stupid enough to give gifts to a government minister.
“The result? Major cutbacks in the number of regional casinos and higher than expected taxes for online gambling in the Chancellor’s Budget.”
“The industry’s reaction has been that the 15 per cent tax level was unrealistic and blew a hole in the government’s liberalisation laws, but the damage was done much earlier through the gambling industry’s weak response to the concerted UK media drive against the new laws and plans. The industry now needs to rethink its UK strategy.
“If the online gaming industry thinks that it remains easy to serve the UK from offshore locations with lower tax breaks, it has learnt nothing from the recent American legislation and police activity and the earlier approach of the UK government. Surely it would be more productive to work now with a sympathetic Labour government? Or does the online gaming industry want to take the blame again in a few years time?”