Last month’s passage of a change in United Kingdom statutes regarding online gambling taxes has produced no friends among the companies the new law targets, with a major Gibraltar-based group now threatening to challenge the new law in British court. The Gibraltar Betting and Gaming Association (GBGA) has announced plans to challenge a new UK tax law targeting gambling firms using Gibraltar as a tax shelter from normal UK-based gambling taxes.
At issue is the UK’s 2014 Gambling (Licensing and Advertising) Act, which received final approval last month and is set to go into effect at the end of 2014. The uproar comes from a new “remote gambling” tax incorporated in the updated code, which will attempt to charge a 15% point-of-consumption tax (meaning where the bettors live, inside the UK).
That’s 15% on gross gaming revenues that dozens of online gambling firms simply aren’t paying. Over the past decade, dozens of prominent, one-time UK gambling firms have located to the tiny promontory of Gibraltar, on Spain’s southern tip at the entrance to the Mediterranean Sea.
The lure? Generous tax breaks for relocating their corporate offices to the British protectorate, since online firms don’t necessarily take up large quantities of real physical space. Just as Gibraltar is home to a famous colony of macaque monkeys, its 2.6 square miles is also home to a growing colony of prominent gambling firms, all paying licensing fee of 1% of GGR. With a minimum fee of £85,000 and a cap of £425,000, the effective tax rate drops down to less than 0.1% for the largest of the firms, whose annual revenue is many tens of millions of pounds.
Call it tax-free. It’s not far from being so.
It’s even a better deal when one considers that the 15% remote-gambling fee called for in the new UK code is the same rate charged by British government against the very same firms in their “brick and mortar” gambling kiosks and shops, scattered across the UK. That gigantic hold has led the firms not only to relocate themselves to Gibraltar, but to drive as much traffic as possible to their online sites, to the point that between 60% and 80% of all British gambling traffic now flows through the Gibraltar nexus.
The British government wants to close that loophole. The gambling companies themselves, British heritage or not, want nothing to do with it. And tiny Gibraltar wants to keep its closet gambling industry intact, since even at a less-than-1% overall rate, the revenue the territory takes in from gambling firms is still 15% of the annual revenue.
This week, the GBGA announced its plans to challenge the law, both via a press release for public consumption and a lengthy legal threat sent to the appropriate British officials – UK Attorney General, Dominic Grieve; Secretary of State for Culture, Media and Sport Sajid Javid MP; and the Gambling Commission itself.
The presser lays out the case that the law doesn’t necessarily do what it claims in the way of adding consumer protections, and that’s got some truth to it, but the real truth is that both sites, the UK government and the neo-Gibraltar gambling firms, don’t want to admit that this is all about taxes. Nowhere in any of the materials offered by the GBGA and its lead counsel, Dan Tench, is the dreaded T-word mentioned. That includes the actual 18-page missive sent to the above-listed UK officials.
Instead, the GBGA lays out some other arguments, ranging from the persuasive to the ridiculous, including the GBGA’s own proposal for “passporting” – which of course, would mean no additional tax revenue for the Brits.
There might even be some relevance to the GBGA claim that grey-market operators might be more likely to target the UK with their offerings, and this pro-gambling-company, Gibraltar-based piece claims that large portions of the segmented, regulated Euro markets of Italy, France and Spain are being served by such operators.
Then again, claims that the UK will now set itself it up as a “flag of convenience” like Malta or Curacao and license raftfuls of shady Purple Lounges and Lock Pokers are pretty much hogwash.
Here’s what the GBGA offers, by way of making its initial legal threats.
From GBGA Chief Executive Peter Howitt:
"This is bad for UK consumers, bad for the regulated industry, bad for Gibraltar and is in breach of European law, but fantastic news for operators who choose to avoid proper regulation.
"We know of no precedent where any regulator in any industry will be granted the role of licensing and regulating operators all over the world in this way, threatening to criminalise companies and people who fail to submit to its regime. This is plainly unworkable. The likely impact of this legislation will be to drive UK consumers towards unregulated or poorly regulated operators, leaving them exposed to unnecessary risks. This Act allows operators from 165 new jurisdictions to gain licences to operate and advertise in the UK and the Gambling Commission is supposed to regulate this industry with no extra-territorial information gathering or enforcement powers. Clearly that spells a new danger for British consumers."
From Gibraltar attorney Tench, who represents the GBGA:
"The Government announced that this law was introduced with the express intention of addressing concerns it said it had about the protection of consumers. The measures introduced through this Act are neither reasonable nor proportionate to achieving that goal and are likely to have adverse consequences for consumers. All this Act achieves is a wholly unjustified, disproportionate and discriminatory interference with the right to free movement of services, a right enshrined in European Law. For these reasons the Government must reconsider this law or we shall have no option but to ask the courts to review it for them."
It’s in the actual letters of complaint to the UK officials that some of the more interesting aspects of this battle surface. What happens if the Gibraltar firms, which include such former UK stalwarts as Stan James, Laddies, Will Hill, bwin.party, Betfair and 888 Holdings, simply refuse to comply?
While the new law itself calls for massive civil penalties for those firms who offer unlicensed services and/or refuse to pay the remote gambling tax, the letter the GBGA sent to the UK officials carries its own veiled threats. Check out this passage from the actual notice of the GBGA’s intended court challenge (emphasis mine):
The GB GC [Great Britain Gambling Commission] has no extra-territorial information gathering or enforcement powers. It will be impossible to gather information as to an overseas licensee’s behavior (absent complaints) and impossibly effective to investigate such complaints when they are made. The GB GC appears to assume that foreign regulators will cooperate with it but while it may be true that some foreign regulators will voluntarily provide such cooperation. ...
The New Licensing Regime does not include any mechanism for blocking customers in Great Britain from accessing unlicensed websites. Consequently the GB GC does not have the power to put in place compulsory payment, website or internet service provider blocking (which are difficult to implement in any event). To be clear, an overseas operator covered by the Act may refuse to be licensed and/or breach UK regulatory controls. Neither the Act nor the GC Guidance provides any mechanism for preventing this situation.
Similarly, the GB GC has no powers to prevent advertising or to enforce against advertisers of unlicensed services where the advertiser is outside the jurisdiction. Again, an overseas operator covered by the Act may refuse to be licensed and/or breach UK regulatory controls. …
Essentially, the above appears to be a thinly veiled threat to the extent of, “We won’t tell you our financial numbers, we won’t pay you any tax if we don’t want to, and you can’t stop us from advertising anyway.”
Would all these major gambling companies with long-time British ties essentially go rogue to avoid paying, as the Beatles once sang, “Mr. Wilson” and “Mr. Heath”? Annually, there’s hundreds of millions of pounds of potential tax revenues at stake. Don’t look for anyone to give up without a serious fight.