Section 53 of the Finance (No. 2) Act 2008 introduced an amendment stating that betting duty should be paid on all bets made at a bookmaker's premises irrespective of the means by which the bet was placed. Áine Matthews, an Associate Solicitor with LK Shields Solicitors, explains that such a move, examined within an overall push to increase tax revenue, provides a further signal that the Irish government is considering taxing and regulating remote gambling.
It has been widely reported that in the recent Budget, the Irish Minister for Finance, Brian Lenihan TD (the Minister) doubled the tax levied on betting to 2%. However, what appears to have gone under the radar is the anti-avoidance measure inserted by Section 53 of the Finance (No.2) Act 2008. It provides that Section 67 of the Finance Act 2002 (as amended by Section 90 of the Finance Act 2006) is amended by inserting the following wording:
'For the avoidance of doubt, betting duty imposed by subsection (1) is chargeable on all bets placed by a person with a bookmaker at the bookmaker's registered premises, irrespective of the means by which a bet was placed'.
Irrespective of the means by which a bet was placed.
In exchanges between the Minister and other TDs (members of the Irish Parliament) during the committee stage of the Finance (No.2) Bill 2008, the Minister explained that the additional wording was inserted as an anti-avoidance measure in order to ensure that betting duty was imposed on all bets placed in a bookmaker's premises, regardless of how a bet was placed. The Minister was of the view that some bookmakers intended to install machines (presumably internet terminals or self service terminals) which would allow customers to place a bet online with an off-shore licensed operator. Such a machine would support the argument that because the server was located offshore, the bet was being made offshore and accordingly no betting duty was payable. The anti-avoidance measure introduced ensures that betting duty is payable, where the bet is placed with a bookmaker, by whatever means, at a bookmaker's registered premises.
Taxation of Online and Telephone Betting
Of particular interest to those operators in the gambling sector are the comments of the Minister and the other TDs during the committee stage concerning the proposed taxation of online and telephone betting. Whilst it was clear from the Report on Regulating Gaming in Ireland - published last year by the Department of Justice, Equality and Law Reform - that its authors regard taxation of online gaming as an opportunity for Ireland to increase tax revenues, this new law flags that the Minister is of the same view in terms of online gambling and telephone bets. Indeed, during the committee stage, certain TDs were of the view that major avoidance issues existed in relation to online and telephone betting. It should be noted that while gaming falls within the portfolio of the Department of Justice, Equality and Law Reform, betting legislation falls under the control of the Department of Finance.
The Minister commented that the tax base is not wide enough for the operation of an online duty and the Minister stated that he intends to consider how best betting duty might be applied in the context of the 2010 Budget, including by examining the UK's gross profit tax model and the issue of the taxability of the substantial volume of betting and gambling which takes place outside the traditional bookmaking setting, referring - of course - to online and telephone betting. He commented that "from a State point of view it is desirable to broaden the gaming tax base. That is the core problem we must address" and "if it can be addressed the amount of revenue could be increased". However, he also acknowledged that "constitutional pitfalls" or the "difficulties in European Union law" associated with such an approach should not be underestimated.
The Minister stated that he contemplated widening the anti-avoidance mechanism to cover off-shore telephone facility. However, he stated that the difficulty is that some of the large, multiple bookmaker firms base their telephone operations outside the jurisdiction. He explained that those who base such operations within the jurisdiction give employment within the jurisdiction, and he feared that if such an anti-avoidance mechanism was extended to telephone operations, such firms could remove themselves to Northern Ireland or elsewhere, with the resulting loss of jobs. The Minister concluded that he was not prepared to take that risk in the short term and would consider the matter further.
During the committee stage, a lot of discussion focused on funding for Horse Racing Ireland (HRI the Irish body responsible for the overall administration of Irish horse racing) and Bord na gCon (Irish Greyhound Racing Board). It was noted that the horse and breeding industry account for one in eight of all jobs in agriculture, forestry and fisheries, and that Ireland is unique in so far as 85% of Irish thoroughbreds are exported. Ireland has the third largest breeding industry in the world. Given the importance of the industry, the funding from betting duties was argued to be of extreme importance. This, in turn, led to discussions concerning the taxation of online activities in order to support the horse and greyhound industries with one TD (Sean Barrett) commenting that it was unfair to the horse and greyhound industries that depend on the "link between the levy and its prize funds that large sums of money are going abroad and these people are contributing nothing to the industry". Such comments send a clear message of intent in terms of online taxation.
There have been plenty of newspaper reports recently concerning the funding of HRI. It is understood that HRI was in negotiations with the Irish Department of Arts, Sports and Tourism over the future of the Horse and Greyhound Fund established under the Horse and Greyhound Racing Act 2001 which provides the mechanism for financial support to the industry. It appears that HRI has taken the view that the taxation of telephone and internet betting is its' saviour in terms of increasing the funding to the industry, given the recent Budget cuts to the sports industry. Brian Kavanagh, HRI Chief Executive, was reported as saying "with so many demands on Government resources and finances, now is the time for the racing industry to become truly self financing, as it is in most other countries. This can be done with a meaningful levy on betting, including all off-shore internet and telephone betting, which has wrongly escaped taxation up to this point" . It is fair to say that there would be a lot of sympathy for the bloodstock and horse racing industries in Ireland, as 'the sport of kings' is very close to Irish hearts.
At a time when tax receipts are falling far short of expectations, it is clear that the Minister intends to find alternative sources of tax revenue. This acknowledgement of the technical ability to place bets in a bookmaker's premises in a manner other than through physically placing the bet will be seen by some as supporting the lawful introduction of various types of electronic machines in bookmaker's premises in Ireland.
For others of the view that Irish law only permits bets in bookmaker's premises to be made physically, it will give them pause for thought in terms of what reform of the sector might be planned.
This article was originally published in World Online Gaming Law Report, 8(2), Feb. 2009.