Governments’ desire for extra tax revenues remains undiminished and several new global and local initiatives are being developed to help them secure more money for their coffers. GBGC recently attended an Isle of Man e-gaming technical briefing to learn how the various schemes might influence the fortunes of offshore e-gaming jurisdictions.
The topics under consideration by the panel of experts from Pricewaterhouse Coopers, Deloitte and KPMG were: Base Erosion and Profit Shifting (BEPS), Diverted Profits Tax (DPT) and Permanent Establishment (PE).
In general, all of these different government schemes are designed to ensure that all company profits are subject to taxation somewhere in the world, with individual governments vying to make sure the profits fall within their jurisdiction.
Base erosion and profit shifting (BEPS) is “a global problem which requires global solutions” according to the OECD, which is leading the “fight” against it with political support from the G20 nations. The OECD describes BEPS as:
“tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.”
The OECD has developed a set of actions designed to “give countries the tools they need to ensure that profits are taxed where economic activities generating the profits are performed and where value is created, while at the same time give business greater certainty by reducing disputes over the application of international tax rules, and standardising requirements.”
“counteract contrived [tax] arrangements used by large groups (typically multinational enterprises) that result in the erosion of the UK tax base.”
DPT will be levied at 25% of profits deemed to be diverted from UK activity. This rate is higher than the 20% rate of corporation tax to which the profits would normally be subjected. The apparent intention is not to actually collect tax revenues directly through DPT but rather to use it to modify companies’ behaviour (and their company structures) so that they pay UK corporation tax instead.
Of greater concern to the internet gambling sector is the move to lower the threshold as to what constitutes a place of permanent establishment in these times of government desperation for tax revenues.
In Spain a court case concerning computer firm Dell Products Ltd (an Irish company) has raised the concept of a “virtual permanent establishment” which seeks to include a virtual presence in a country e.g. website or other digital presence under the definition of “permanent establishment”.
France and Australia are already looking into other aspects of virtual permanent establishment. But the notion that web-based sales into a country or country-facing websites can be classed as permanent establishments in a country and liable to local corporate/income tax should raise alarms for offshore-licensed internet gambling operators and their marketing affiliates.