GPWA Times Magazine - Issue 31 - February 2015

so operators can trade in an environment that meets their needs and offshore juris- dictions can draw on the other tax advan- tages that they can offer. POC gaming duties are depressing if you have had access to amarket without paying them in the past, but they level the playing field and impact all companies that want access to customers in a marketplace. More importantly, they have no impact on the propensity to fall due to any other taxes, and there is still a lot to play for. The key for operators will be to pick their locations carefully and, depending upon which markets they are facing, ensure the place of supply/place of establishment for direct (corporation tax) and indirect (VAT and sales taxes) taxation is robust and has real substance to it. This means key people who are equipped, skilled and empowered to make either strategic or day-to-day op- erational decisions. For the offshore juris- dictions this provides a great opportunity to encourage new or existing licensees to commit further cash, employees and re- sources to their jurisdictions as they seek to bolster the substance of their presence and protect themselves from inadvertently fall- ing farther into the tax net of the countries where their consumers are. The negative impact of POC on gaming profits means that it is even more im- perative for gaming companies to protect themselves from direct and indirect taxes elsewhere. The potential difference in val- ues is huge because of the multiplier effect of the Price/Earnings ratio on company valuations. Even the smallest amount of unnecessary tax — such as gaming duty at source — has a disproportionate impact on company values. “Our experience is that gaming companies have always looked at a range of factors when considering where to be licensed and located, including the reputation of a jurisdiction, the ease of doing business there and the robustness of the technologi- cal infrastructure," says Robin Le Prevost, Alderney’s director of eCommerce devel- opment. "But there is no doubt that taxa- tion is an increasingly important issue and here in Alderney we are an OECD Tier 1 jurisdiction but have sought to maximize the attractiveness of the jurisdiction, with no VAT, no gaming duty, 0 percent cor- poration tax and a willingness to support companies in moving personnel and op- erations to the islands.” A bright future? The offshore regulators that survive and prosper over the long term need to follow a five-point plan: 1. Flexibility: They need to adapt to the needs of the operators and show a flex- ible approach to how and where they allow operators to operate across inter- national borders and international juris- dictions. Attempts to put restrictions on the operators because they suit the needs of or protect the economic position of the jurisdiction at the expense of flexibility for the operator are doomed to fail. 2. Duties and License Fees : While they need to ensure that they raise sufficient income to fund their licensing regime, they need to review their charging structures so as to minimize double taxation due to POC gaming duties elsewhere. Alderney has already made moves in this area and I expect some others to follow suit. 3. Substance : They need to take a wider view on economic benefit and encour- age gaming companies that want to bolster their offshore status to invest in the jurisdiction through increased in- frastructure, services and employment. 4. Cooperation : Some agreements are al- ready in place, but regulators need to collaborate with each other as well as compete. They also need to work with the larger jurisdictions on regulation, customer protection, policing and en- forcement of POC in return for being left alone in other areas to allow gam- ing companies to continue to thrive in a low-tax jurisdiction. 5. Liquidity and Pooling : If regulators can work with each other and with the Big Boys in providing gaming com- panies with a regulatory framework that gives them more certainty, low- ers their commercial risk and matches their operating and tax structures, then the big prize is a seat at the table if and when international pooling takes off. Unless the differences and protection- ism between individual U.S. states and EU countries can be addressed, formulating a series of bilateral agree- ments on pooling is likely to be an un- certain and lengthy process. The low- tax offshore jurisdictions could play a key middleman role between various larger economies when it comes to international pooling. Taxation is ultimately not a question of mo- rality. It is all about rules and facts. That said, there is an underlying fairness in the alignments that a changing global environ- ment may bring about. Governments want to align taxation to where end-consumers are based, while online gaming companies that are prepared to invest in and commit to having substantial presence in a low-tax jurisdiction should be able to align their profits to the relatively benign tax environ- ment where they are based. These fun- damental changes might hold true to the Chinese expression “May you live in in- teresting times,” but for the offshore juris- dictions that are open to change, there is a real opportunity to play a pivotal role and to grow the wider economic benefits they derive from having gaming companies op- erating from their jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John Le Poidevin is BDO U.K.’s former head of con- sumer markets and is an independent adviser to the online gaming sector. 60 What’s next for “offshore” regulators: Dealing with Point of Consumption and other critical challenges