Tax Central To Gambling Regulation Debate
By Jana Sedlakova
National ring fencing in remote gambling regulation has taken hold in Europe in recent years. It is questionable whether this is appropriate in the modern digital environment, and what the associated costs could be. One may also ask whether there is not a better, more efficient way of operators and regulators working together in a region where there should not be any barriers to the free trade of services. Various initiatives have taken place over the last couple of years to address the ring fencing of gambling regulation within the European Union. At the heart of the matter is tax.
The proposed draft bill in gambling and licensing in the UK was presented in December 2012 and represents another step in the direction towards the ring fenced model. Arguments have been made that this is not in line with the movements at an EU level, namely Commissioner Barnier’s Action Plan.
In the UK, one might expect a mindset more adjusted to this open climate.
The UK’s market has been liberalised since the introduction of the Gambling Act 2005 and the latest update demonstrates that the UK is keen to follow the ring fencing trend in regulation. It is interesting how the drivers for the regulatory change in the UK are silent on the key element of incrementing the revenue income for the public purse. The proposed Draft Gambling (Licensing and Advertising) Bill mentions the tax element when arguing about the costs of the regulation. It is argued that the aim to increase income in the form of taxation is not a good justification for restricting services based on the permissible exemptions in the e-commerce directive.
Tax issues remain a major concern for the e-gaming sector, driving regulations and the industry itself.
Tax issues remain a major concern for the e-gaming sector, driving regulations and the industry itself.
Not long after adding a new game to their portfolio in late December 2012 Net Entertainment hit the news again. The Swedish Tax Agency announced it would impose further taxes on Net Entertainment totalling EUR 10.7 million after it conducted an audit into the company’s arrangement with it subsidiary in Malta. The company responded on 3 January 2013 with its intention to appeal as it finds the Tax Agency’s case is “unfounded”. It seems that this confirms the primary position behind public powers.
Net Entertainment said in their press release [03/01/2013]: “As has been communicated previously, Net Entertainment disputes the assessment that the Swedish Tax Agency has done and consequently also the amounts as it relates to the income tax adjustment and the tax surcharges. Net Entertainment insists that it has followed applicable laws for taxation of its operations, which is also supported by the experts that the Company has consulted on the subject.”
Whilst tax and consumer protection issues take the primary position, cultural differences seem partially set aside. Whilst for ring fenced models it is natural to have a sense of possession of the market, on the other hand, the UK traditionally welcomes open business relations. Thus, it seems, the proposed change would be significant indeed.
It may be a simple case of the general public’s acceptance of a status quo. It took a generation to change the mindset about cigarettes. How long it will take to change the perception on online gambling, and who is to address whether the perception of an individual is the correct one. Particularly in an instance where there is lack of general consensus.
Addressing the notion that the UK is moving towards the ring fenced model and the vision of having multiple [potentially 27] separate ring fenced models across the EU [from the perspective of the free movement of services policy, exemption from the e-Commerce Directive and from a player perspective];
It may be a simple case of the general public’s acceptance of a status quo. It took a generation to change the mindset about cigarettes. How long it will take to change the perception on online gambling, and who is to address whether the perception of an individual is the correct one. Particularly in an instance where there is lack of general consensus.
Addressing the notion that the UK is moving towards the ring fenced model and the vision of having multiple [potentially 27] separate ring fenced models across the EU [from the perspective of the free movement of services policy, exemption from the e-Commerce Directive and from a player perspective];
Clive Hawkswood, CEO at Remote Gaming Association said:
“In truth it makes a mockery of the rules about freedom to provide services and the principle of having an EU internal market. It is right that gambling is a different type of service and that the cultural approach to gambling varies across the EU, however neither of those justifies gambling be excluded from just about every Directive, like the e-Commerce Directive. Member States have openly flouted the rules for years, normally to protect their domestic industries and tax revenues. I have no doubt that the UK has been emboldened to bring forward its new licensing proposals because it has seen its neighbours in the EU playing fast and loose with the Internal Market rules and now sees no reason why it should have to play by those rules if nobody else does. Most of the blame for that must rest with the European Commission which has sat on a large number of complaints dating back several years without taking a single country to the European courts to enforce compliance.”
“In truth it makes a mockery of the rules about freedom to provide services and the principle of having an EU internal market. It is right that gambling is a different type of service and that the cultural approach to gambling varies across the EU, however neither of those justifies gambling be excluded from just about every Directive, like the e-Commerce Directive. Member States have openly flouted the rules for years, normally to protect their domestic industries and tax revenues. I have no doubt that the UK has been emboldened to bring forward its new licensing proposals because it has seen its neighbours in the EU playing fast and loose with the Internal Market rules and now sees no reason why it should have to play by those rules if nobody else does. Most of the blame for that must rest with the European Commission which has sat on a large number of complaints dating back several years without taking a single country to the European courts to enforce compliance.”
Several key gambling firms like William Hill, Ladbrokes, and Betfair left the UK some years back and it is perhaps no surprise that a desire for change in the regulatory position has come about when the government is looking for every penny it can find to bolster its finances. It is argued that other EU Member States impose higher taxes and some, as in the case of Germany, implement rather prohibitive rules on remote gambling.
The Daily Mail reported on 9 December 2012 that “John Christensen, a director of Tax Justice Network, said: ‘It really doesn’t make much sense to lower the rate of taxation to try to bring them back to the UK. The tax rate should remain as it is.’ Dr Mark Griffiths, director of the International Gaming Research Unit at Nottingham Trent University, said: ‘Online gambling exacerbates the problems associated with addictions because it is available 24/7 and 365 days a year.’
The Daily Mail reported on 9 December 2012 that “John Christensen, a director of Tax Justice Network, said: ‘It really doesn’t make much sense to lower the rate of taxation to try to bring them back to the UK. The tax rate should remain as it is.’ Dr Mark Griffiths, director of the International Gaming Research Unit at Nottingham Trent University, said: ‘Online gambling exacerbates the problems associated with addictions because it is available 24/7 and 365 days a year.’
He added: ‘It is much more difficult to regulate and to make sure children don’t use online gambling.’”
As the biggest e-gaming operators are now mainly based offshore the questions of attracting them back to the UK vary. Firstly, what should the rate be and how this should be structured? Lowering gaming tax would be a compelling reason for them to return, but the Draft Bill might go further than that and compel them to return by legislative force.
As the biggest e-gaming operators are now mainly based offshore the questions of attracting them back to the UK vary. Firstly, what should the rate be and how this should be structured? Lowering gaming tax would be a compelling reason for them to return, but the Draft Bill might go further than that and compel them to return by legislative force.