Inside Asian Gaming

March 2010 | INSIDE ASIAN GAMING 41 No harmonisation of direct taxes or gambling duties in the European Union The laws of the European Union (EU) go some way to ensure that companies established in one of the 27 EU countries (Member States) can trade freely in (and offer their services to consumers based in) other Member States. There is, however, little by way of harmonisation of tax laws throughout the EU with the exception of certain EU-imposed taxes such as value added tax (VAT). The imposition of taxes (including direct taxes such as corporation tax, income tax and gambling duties) remainsacompetencyofeachMemberState. Indeed, the preservation of Member State sovereignty over taxation constitutes one of the major hurdles to a fully harmonised EU. Gambling operators are typically taxed more heavily than other businesses, paying direct taxes (i.e. corporation tax) on their profits and any social security contribution as an employer, together with specific betting duties and levies. Unlike most other traders (but similar to banks and insurance companies), gambling operators also cannot reclaim the majority of the VAT that they suffer on supplies made to them. Different approaches 1. Open regulatory but high tax jurisdiction One might assume that jurisdictions with open regulatory regimes would also seek to attract gambling operators with relatively moderate taxation regimes. This is not necessarily the case. The United Kingdom (UK) has perhaps the most liberal gambling regime in the EU, permitting online betting for some time and online gaming since September 2007. However, few online operators have established themselves in the UK. The majority of UK-facing online operators have set up or relocated overseas due to prohibitively high taxation levels in the UK. UK-based operators pay 15%general betting duty (or 15% remote gambling duty) on their gross profits and 10%Horserace Betting Levy (‘Levy’) on gross profits from bets on British horseracing. They also pay corporation tax on their taxable profits at between 21% and 28% and employer’s National Insurance contributions (NICs) at 12.8% on the gross salaries and bonuses of their employees and directors (to increase to 13.3% in 2010/11). In addition, their employees and directors will, from 6th April 2010, suffer income tax and employee NICs at rates that, at the top end of the pay scale, will result in them taking home a net amount which is less than half of what they earn gross. A factor in this ongoing migration has been that the UK currently permits gambling operators licensed in other states within the European Economic Area (i.e. the EU and the European Free Trade Association countries Norway, Iceland and Lichtenstein), plus Gibraltar and certain jurisdictions on a so-called ‘white list’ (Alderney, Antigua & Barbuda, the Isle of Man and Tasmania) lawfully to advertise their services to UK citizens. Consequently, the majority of UK-facing offshore bookmakers are now established in one of the following four jurisdictions— Gibraltar, Alderney, Malta or the Isle of Man. From there they can lawfully advertise to the UK public while paying taxes (and not just gambling taxes) at rates that are materially lower than those in the UK. This differential in tax rates is illustrated in the table at the end of this article. The British government has recently reconsidered these rules with a view to (i) levelling the playing field for UK-based operators of remote gambling operations to enable them to compete with overseas rivals and (ii) securing fair contributions from overseas licensed operators toward the costs of regulation, the treatment of problem gambling and the Horserace Betting Levy. However, the review was criticised for failing to consider the main issue; namely the taxation of remote gambling and gaming companies. In August 2009, the two largest UK-based retail bookmakers, WilliamHill and Ladbrokes, gave credence to such criticism by both announcing they were moving their respective Internet sportsbooks to Gibraltar. In January 2010, the British government announced proposals to require offshore operators (from EEA or ‘white list’ states) to hold an additional licence from the Gambling Commission in order to continue to be able lawfully to advertise their gambling services to residents of the UK. The licence would require operators to comply with British technical standards and social responsibility and general regulatory obligations. Crucially, these proposals do not explicitly deal with taxation or the Levy. Under the new regime, overseas operators Regulation Gibraltar