The proposed UK remote gambling point of consumption regime – a solution looking for a problem?
The Gambling (Licensing and Advertising) Bill proposes to reform the treatment of overseas based companies providing gambling services to consumers in the UK. The Gambling Bill was introduced in the Queen’s speech in May 2013 and the Bill is expected to pass into law within the next 6 months. In addition, the next Finance Bill is expected to contain measures implementing the point of consumption gambling duty regime by December 2014. We refer to the combined measures as the ‘POC Regime’.
What changes are proposed?
At present, companies advertising remote gambling services to UK consumers can do so provided they hold a valid licence from within the EU (including Gibraltar) or the White List Territory in which they are established. The introduction of the POC regime means that any overseas company wishing to advertise or offer its gambling services in the UK must also hold a licence issued by the UK Gambling Commission.
Currently, remote gaming tax is only chargeable in the UK if the gambling provider has a UK Gambling Commission licence, i.e. it has at least one piece of remote gambling equipment (such as a server) situated in the UK thus requiring a licence. The proposed POC Regime also moves taxation to a point of consumption (in fact for practical reasons a point of residence test will be applied), which means that all bets placed by UK customers will now be subject to UK gaming tax.
The proposed rate of tax to be applied to gambling operators’ profits is 15% (profits being broadly defined as money from bets received less winnings), and shall be payable quarterly. In a recent summary of responses to the consultation previously issued by the Treasury it was suggested that:
“With a place of consumption tax basis, remote gambling operators will pay tax on the gross gambling profits generated from UK customers, no matter where in the world the operator itself is located.”
However, the Treasury paper then makes clear that the UK does not necessarily intend to calculate tax on this basis, for example, the calculation method means that many customer acquisition and retention bonuses given by operators (such as free plays or bonuses) may also be taxed. The first draft amendments to the Betting and Gaming Duties Act 1981 which will be introduced by the Finance Act were issued on 16 August and the UK Government has asked for representations regarding these to be made by 30 September. A final draft will then be produced for a final 8 week consultation process.
What impact will the bill have on B2B & B2C providers?
The licensing requirement will apply to both B2B and B2C providers, however in relation to tax, the primary responsibility for payment will rest with the B2C operators.
Based on industry experience and analysis conducted by economic experts, the online gaming industry expects that the POC Regime proposed will, directly contrary to its stated aims, encourage the development of a significant “black” or “grey” market in remote gambling services to UK consumers.
The industry argues that a tax rate and structure that is not sensitive to market forces will (as has happened in other Member States like France) simply reduce the revenue, profits, advertising and marketing spend of licensed operators to a point where they cannot compete with unlicensed operators in the extremely competitive online environment in which they operate (and this will also reduce UK tax receipts).
In addition to significant new tax costs, current operators lawfully supplying the UK market from Gibraltar and other reputable jurisdictions may face substantial dual or additional regulation, compliance and licensing costs.
The likely impact on operators is significant and will affect marketing activity and profitability, which ultimately may undermine the operators’ ability to be competitive in the online gambling market.
Any other interesting points to note?
The proposed POC Regime appears to go much further than its stated objectives of consumer protection and achieving a level playing field for taxation purposes. As constructed the proposed POC Regime may put the UK in direct competition with well established and experienced international gaming hubs such as Gibraltar.
Under the proposals, UK licence holders appear to be allowed to base their operations anywhere in the world, with no distinction made between EU operators (that are subject to a wide range of EU laws including framework Directives relating to consumer protection, data protection, anti-money laundering and enforcement) and those based outside of the EU.
The POC Regime also does not impose tax on UK licensed operators for bets taken from customers outside the UK, even if the other jurisdiction does not have a POC tax regime. This is a lower rate of tax than that imposed by other remote gambling hubs and suggests an aggressive push by the UK to increase its share of the international online gambling industry.
Are there any European laws that could prevent the POC Regime coming into force?
It is established European law that Member States cannot restrict cross-border services within the European Union unless objectively justified for public policy reasons, and even then any restrictions must be proportionate to those objectives. The UK Government claims that the new legislation is necessary to improve the protection of UK customers and the UK regulator claims it is necessary that they directly regulate any UK facing operators. However, little evidence of consumer detriment or regulatory risk has been adduced under the current UK regime. In addition, lack of consideration of suitable enforcement measures heightens concerns about the risks inherent in the proposed POC Regime.
[Update September 2013]:It is interesting to note that the UK Government is strongly opposed to the proposed Financial Transactions Tax (FTT) - (see e.g. "Blow to the FTT vindicates Treasury"). The UK may have difficulty on the one hand advocating going it alone for a POCT for online gaming but then claiming it may bring a legal challenge for any financial services tax brought in by other Member States if they are not agreed at EU level. EU tax law makes no such distinction between the two sectors and there is a real danger that with a POCT the UK is opening up the imposition of extra-territorial taxes by other European countries against the hugely important UK e-commerce and financial services businesses (and potentially undermining its position in any political or legal challenge against FTT). A recent legal opinion from the Legal Service of the European Council stated that as currently specified the FTT, "exceeds Member States' jurisdiction for taxation under the norms of international customary law", is incompatible with EU law as it "infringes upon the taxing competences of non-participating Member States" and is “discriminatory and likely to lead to distortion”.
How can gambling providers get ready for the change?
Until there is greater certainty regarding the timing, extent and impact of the changes we advise clients to simply maintain a watching brief and to respond to any relevant industry consultations. It should be noted that the Gibraltar Betting and Gaming Association (representing all remote gambling operators in Gibraltar) has publicly noted its intention to consider Judicial Review of the proposals if they are enacted and this could impact the structure and the timing of any legislative changes.
LICENSING AND REGULATION
Ramparts currently assist clients obtain licences and authorisation across the EU including preparation of gaming and financial services licence applications in Gibraltar and the UK.
This article is for information purposes only. Any opinion, statement or information expressed above is not intended as legal advice and should not be relied upon as such, and no liability will be accepted in this respect. If you would like legal advice please contact us. We are qualified to provide legal advice on English, Gibraltar and European law and we work with a range of trusted specialist advisors in other jurisdictions around the world.