European jurisdictions must negotiate a difficult compromise between the demands of local, land-based gaming operators and their offshore competition when considering what kind of tax regime to introduce for internet gambling activities, legal experts warn.
The thorny issue of tax is once again moving to centre stage as the European online gambling market continues its slow evolution towards a less restricted marketplace, underlined industry executives and observers at the European Interactive Gaming (EIG) conference in Barcelona yesterday.
While countries subject to European Commission infringement proceedings, such as France and Sweden, mull over liberalizations of their online betting markets, issues of tax and offshore competition are moving up the agenda of both government officials and those lobbying hardest for change.
Central to the debate is the likely divergence between tax rates for on- and offshore gambling services, when foreign-based internet gaming providers insist they cannot be expected to pay tax at the same rate as established land-based operators, but land-based companies insist that offshore providers must be forced to do so in the interests of fair competition.
Petter Nylander, chief executive at Unibet, told EIG delegates that his company hoped to see more European countries moving towards the UK model where UK offline operators pay a gross profits tax but offshore providers established elsewhere in the EU are not subject to tax on revenues from UK customers.
However, Nylander said that he nevertheless welcomed the prospect of paying some form of local tax in countries like Sweden as and when they open their gaming markets to private competition. “Logically and intellectually, if you want a physical presence in terms of distribution [in the country], then you should pay a local tax.”
But Nylander cautioned that Italy’s “half-pregnant” tax system “doesn’t really work”, adding that further regimes in which offshore companies were forced to match incumbent land-based operators on taxation grounds would leave those companies forced to negotiate a taxation tightrope if they did not wish to find themselves effectively priced out of newly liberalized markets.
Nylander suggested that a tax rate of 10 percent represented a “dangerous threshold” for private internet gambling providers, above which, he said, private operators would likely baulk at paying more. “That makes sense,” Nylander said. “15 percent is too high.”
Thibault Verbiest, partner at Paris- and Brussels-based law firm ULYS, indicated that questions of taxation had now become the “essential” issue for those officials charged with drawing up a new gambling regime in France.
“They originally wanted to cut and paste the offline [tax] regime,” Verbiest told delegates. “But now they are saying the opposite of that; now they understand it must be viable. But they will still make it high. They have to find a way to reach both goals.”
But as the rest of Europe looks to the UK model for guidance, land-based operators within what has been the continent’s most liberal gaming market to date are making noises regarding what they view as unfair competition from offshore operators paying a lower rate of tax than the UK-based companies.
Recent comments from John O’Reilly, managing director of online gaming at LadbrokesPortfolio info about Ladbrokes, indicated the company was unhappy with the competitive advantage the UK system afforded its offshore UK-facing competitors.
And sources suggest the UK’s high-street bookmakers are also increasingly concerned with the lack of a level playing field and are now lobbying to see gaming taxes cut from the current rate of 15 percent on gross profits.
Tony Coles, partner at UK law firm Jeffrey Green Russell, suggested the UK authorities had previously considered imposing a tax regime on offshore companies when drawing up the 2005 Gambling Act. “We expected a tax regime. It was addressed by both the Treasury and the DCMS [Department of Culture, Media and Sport]. But it was rejected as they didn’t think it would comply with EU law. Plus, there was the threat of reciprocity.”
The present likelihood of UK operators receiving a sympathetic hearing within the UK’s corridors of power could be limited, however, bearing in mind ongoing considerations on the part of the Gambling Commission and the DCMS as to the future of fixed-odds betting terminals.
Coles declined to comment on suggestions that UK high-street bookies might seek a compromise with the government over the tax issue in return for concessions that would allow them to keep FOBTs in their shops.
