GPWA Times Magazine - Issue 19 - February 2012

COVER STORY operators transacting with U.K. players will be required to pay U.K. remote bet- ting or gaming duty at 15% of gross gam- bling yield. Operators envisaging moving their base from a zero or low gaming tax jurisdiction (such as Alderney, Gibraltar or the Isle of Man) will previously have been concerned about the fact that a U.K. license came with a requirement to pay the duty on all transactions conducted un- der that license, not just transactions with U.K. residents. However, some relief will have come with the recent announcement that the U.K. is moving to a “point of con- sumption” basis for taxing online gam- bling, as well as for licensing it. In other words, U.K. licensees will not have to pay gambling duty on bets placed by non-U.K. residents. The change to the basis for tax- ation will come into force in April 2012, so current U.K. licensees can begin enjoying this benefit almost immediately. As well as U.K. gaming duty, opera- tors will need to budget for the annual licensing fees payable to the Gambling Commission. However, license fees in the U.K. are fairly reasonable compared to other jurisdictions, particularly for those operating on a smaller scale. For exam- ple, a license for casino games (including poker), where annual gambling revenues are between £550,000 and £5 million, is subject to an annual fee of around £9,500 per year. A license for remote fixed-odds betting on real events will cost around £13,500 per year, provided revenues do not exceed £5.5 million. In addition to remote betting duty, licensees accepting bets on horse races in the U.K. will also need to factor in the duty payable to the Horserace Betting Levy Board, at 10.75% of gambling yield. Currently, it is not necessary for a U.K. license application to be made by a U.K. company. This does not necessarily mean that U.K. corporation tax (26% of profits) can be avoided; however, careful corpo- rate structuring may be able to minimize the impact of this tax. Detailed consider- ation of this issue is, however, beyond the scope of this article! Server location As the law stands, all U.K. licensees are required to locate at least one piece of remote gambling equipment in the U.K. The Gambling Commission tends to work from a starting point that all equipment will be in the U.K., but it does have dis- cretion to allow equipment to be located overseas. It is unlikely to exercise this discretion unless the location in question is a well-regulated gambling jurisdiction where it can communicate with the lo- cal regulator and effectively monitor the equipment in question. No announcement has been made on this subject, but it may be that in amending the Gambling Act the government re- moves the requirement for any equipment to be located in the U.K. This would cer- tainly make the transition to a U.K. license easier for companies with established op- erations overseas. It may also affect cor- poration tax considerations. Application process When the U.K. license requirement is introduced it is very likely that some form of transitional arrangements will be put in place for operators currently targeting the U.K. from EEA and white list jurisdictions. This will allow such operators to continue their U.K.-facing operations for a period, perhaps six months, pending full determination of their U.K. license application. Operators should be aware that a U.K. li- cense application will entail a rigorous in- vestigation by the Gambling Commission into the affairs and financial circum- stances of the main shareholders in the applicant company, as well as companies further up the chain of ownership. Those in key management positions will also be subject to investigation. This process can take up to six months to complete for larg- er companies, although typically a U.K. license application can be completed in under three months. The Commission will adopt a bespoke, risk-based approach to online gambling regulation. Particularly when it comes to licensing those currently operating from reputable jurisdictions, this means that it has the flexibility to carry out a more or less rigorous investigation depending on the home jurisdiction, scale of operations and operating history of the applicant. The Commission will wish to avoid dupli- cation of work already undertaken by the home regulator and will have considerable flexibility around the conditions to be im- posed on licenses to achieve its objectives. How will the market change in practice? It appears unlikely that companies will relo- cate employees to theU.K., not least because there will be significant tax advantages to retaining as many ancillary services as pos- sible overseas. Assuming that operators will be entitled to retain gambling servers over- seas as well, the most significant differences to operators will be the requirement to pay U.K. license fees and gambling taxes and of course the fact that they will be regulated by the U.K. Gambling Commission. As all operators targeting the U.K. will be subject to these same costs, it may be that the impact of the change on the industry is less than anticipated. Ironically, it is likely to be the customers who most feel the impact, as additional costs to the op- erator means fewer bonuses and incen- tives will be able to be made available. We doubt the customer will see this as a price worth paying for questionably greater regulatory protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Melanie Ellis is a solicitor in the gambling law team at Harris Hagan. After graduating from St Hilda’s College, Oxford in 2003, she trained as a barrister before joining Harris Hagan in 2005 and qualifying as a solicitor in 2008. Melanie has developed expertise in all aspects of gambling law advising major casino operators, online betting and gaming operators and start-up companies. She regularly contributes to gaming law publications. Melanie enjoys skiing, rock climbing and competing in triathlons. “ Given the U.K.’s failure to attract a single major online gaming operator . . . it is no surprise . . . that the U.K. should now seek to amend its legislation to regulate gambling on the same basis as others in Europe.” Changes coming to the U.K. online gaming market