GPWA Times Magazine - Issue 31 - February 2015

dard rate, than in Sweden at 25 percent. The new Place of Supply rules that come into force in 2015 will mean that, just as with POC, EU governments can look to where end-consumers are in determin- ing where and how much VAT is paid by many Internet-based companies. VAT is of course a particular issue for the gaming world given that gaming is defined as an exempt activity, rendering it impossible for a gaming company to recover VAT incurred on products and services. While this tightening up on VAT avoidance pri- marily impacts Malta and the Isle of Man (which both charge VAT), the offshore jurisdictions will also be impacted if the companies that operate within their ju- risdictions cannot demonstrate sufficient offshore presence for VAT purposes. Then there’s POC Introducing POC as a basis for taxation is a game changer. At the heart of all of the arguments by national governments on taxation and morality is a perceived un- fairness that the end-customers of global corporations are located within the big industrialized economies and that the governments of those economies do not get what they believe to be a fair share of any taxes on those transactions. Angela Merkel summed it up in a 2013 speech: “It's not right that giant global compa- nies have huge sales here [in Germany], in all of Europe, in the United States and elsewhere and then only pay taxes some- where in a tiny tax haven.” Government’s response is to change the rules of the game and tax corporations based on where their customers are, not where their structures and operations may be located or where the transaction was historically deemed to have taken place. Behind the moral bluster, govern- ments have applied a simple edict which seeks to deal with the Internet age and have put a severe dent in the historical ba- sis of taxing companies based on location of supply. If a customer is in their coun- try, governments want to ignore any tax structures and match the customer to the tax collected. From a gaming perspective, this is what is driving the government agenda from “gray” unregulated markets to the regu- lation of gambling in the world’s major consumer economies — with POC gam- ing duty or taxation likely to become the norm. The pending introduction of POC gaming duty in the world’s largest regu- lated online gaming market in the U.K. has caused much debate and consterna- tion within the gaming world and direct legal challenges from Gibraltar, but the U.K. government has been pretty explicit in why it is imposing it, stating in their Aug. 2013 consultation document that “a place of consumption approach supports the Government’s objective of a fairer tax system. Currently, remote gambling operators can and do avoid U.K. gam- bling taxes by supplying from abroad. The reform will level the playing field in terms of U.K. gambling tax liability and provide a fairer basis for competition be- tween remote gambling operators sup- plying the U.K. market from the U.K. and from overseas.” The U.K. is not alone. So long as the U.K. can demonstrate that it can enforce the new duty (and it has a good record on tax enforcement overall), then there will be an inevitable shift from unregulated to regulated market territories (for regulated – read taxes!) in the short to medium term, with significant consequences for the profitability and market worth of gaming groups. Some new markets (e.g., certain U.S. states) will open up to online gaming, but regulation will mainly mean “gray” markets will become regulated ones and operators’ revenues in those markets will be taxed and therefore overall net revenue levels will fall. So what does this mean for offshore regulators? Whether or not the Gibraltar-based op- erators succeed in the U.K. courts (the current saga feels a bit like King Canute trying to hold back the tide), the changes present an opportunity for offshore regu- lators. The long-term future for operators and regulators is to flex their approach 59