UK Publishes Draft Bill to Tax Offshore Gambling Operators UK Publishes Draft Bill to Tax Offshore Gambling Operators
Johnny Wilson, Creative Commons Attribution 2.0 License

The UK Department for Culture, Media and Sport (DCMS) published its long-awaiting draft legislation on Monday.

The Draft Gambling (Licensing & Advertising) Bill amends existing legislation to require all operators that advertise and accept bets from UK customers to obtain a license and pay tax on UK wagers.

Changes were first proposed back in mid-2011, followed by a period of industry consultation. It received the expected mention in the 2012 budget, and the legislation could be adopted by the end of 2014.

The existing system, introduced in the 2005 Gambling Act, saw the creation of the new UK Gambling Commission to oversee the licensing and regulation of online gaming in the UK along with traditional gambling. Since 2005, all operators in the UK are required to apply for a license and pay 15% tax on gross profits.

However, it also introduced a “white list” of foreign jurisdictions, which includes all the European Economic Area, Gibraltar, Alderney, Isle of Man, Tasmania and Antigua and Barbuda. Companies in these areas may continue to operate in the UK while avoiding the UK’s high levy. The result was the vast majority of the online gambling moved offshore.

The new bill thus proposes a switch to a “point of consumption tax,” meaning the location of the bettor, not the operator, is the deciding factor on what tax must be paid. Under the new legislation, rake collected by a poker room attributed to a player in the UK will be subject to taxation.

The current tax of 15% on gross profits introduced in 2005 has been deemed too high by many in the industry. The new draft bill does not specify a tax rate. The DCMS itself recently released a report that concluded that the 15% taxation forced many online operators offshore, and if maintained when switching to a point of consumption tax could lead to 40% of the industry leaving the market.

William Hill has strongly opposed the plan and is considering its legal options.

In the “impact assessment” report in the draft bill, it concludes that “the proposals are cost- and benefit-neutral to British-based remote gambling operators, as there will be no additional costs and may even be some … marginal net benefits in relation to fees.”

The point does not apply for the majority of operators, who are no longer “British-based” since the introduction of the 2005 legislation. Although there are approximately 100 active licenses issued by the UKGC to online operators, most are smaller casino and bingo sites; nearly all major online poker rooms and bookmakers are based in white-listed jurisdictions.

The bill promises an easy transition for these operators, with a transitional period where operators receive automatic provisional licenses.

“The proposals not designed to duplicate the work of other regulators or to unnecessarily increase burdens imposed on operators,” it also states. Operators in unspecified “well-regulated jurisdictions” will not face significant increases in licensing costs.

Beyond the increased costs of operation, which may be a cost partially passed on to the customer, online poker players should see little change to the introduction of the new legislation. There is no requirement for segregating the player pool, reducing stakes and games spread, or other such restrictions.