As part of on-going moves to tackle tax avoidance, the Government has recently announced plans to ensure that gambling companies located outside the UK are taxed on gambling profits obtained from UK customers.

The new rules will be supported by tough enforcement measures, including the creation of new criminal offences. Failure to comply could result in prison sentences of up to seven years, unlimited fines, or the loss of a remote gambling operator’s licence to operate.

Section 1.01    What is remote gambling?

Remote gambling is a form of gambling in which the participants are not physically present, but carry out their gaming over some form of communication device, such as the internet, telephone or television.

This means that gambling companies can operate from anywhere in the world, and still reach customers in a particular country. This has regulatory and tax implications, as companies can take advantage of the different regimes imposed by different countries.

Section 1.02    The current position

The UK is a prime example of this because, at present, no UK tax is paid on earnings derived from remote gambling. Instead gross gambling profits are taxed on a ‘place of supply’ basis.

Many large gambling companies have therefore moved part of their operation overseas, where they can still reach UK customers, without having to pay tax on the profits. For example, according to the Guardian, William Hill and Ladbrokes have based their online operations in Gibraltar, where they are taxed at 1% and subject to a cap of £425,000.

In contrast, the Gambling Commission reckons that the UK remote gambling market is worth in excess of £2 billion each year, which could lead to around £300 million in increased tax take for the UK.

Section 1.03    Proposed changes

The Government has been planning to tackle the taxation of remote gambling since 2011. It consulted on its proposals in 2012, and has now published its conclusions. These are again up for consultation.

The hope is that the proposed changes, which should come into effect in December 2014, will create a level playing field across the industry, with all remote gambling companies paying tax on gambling profits derived from UK customers.

The proposals are technical, relating to the minutiae of tax law, but will change the underlying tax basis: moving it from a ‘place of supply’ basis to a ‘place of consumption’ basis.

Section 1.04    The enforcement mechanism

But the proposals will only work if there is an effective enforcement regime. The Government is therefore intending to:

  • Work with other tax authorities to recover outstanding tax
  • Require remote gambling operators, based in a country with which “the UK does not have a reliable debt collection and assistance agreement, to either:
    • appoint a joint and severally liable fiscal representative; or
    • appoint an administrative representative (who would not be joint and severally liable) and provide HMRC with a security”
  • Require a security from operators who have a poor compliance history.

The Government will also create new summary criminal offences to deal with:

  • those operators who do not provide a security when required to do so, and
  • those operators who fail to appoint a fiscal or administrative representative when required to do so.

In the most serious cases of non-compliance, the Government plans to seek the revocation of the operator’s Remote Operating Licence.

Section 1.05    What next?

While it is inevitable that gambling corporations will be unhappy about the proposed changes – according to the Guardian, William Hill is already considering contesting the proposals as being a breach of EU competition law - it appears that the Government is equally determined that the changes become law.

“It is unacceptable that gambling companies can avoid UK taxes by moving offshore, and the Government is taking decisive action to ensure this can no longer happen in the future,” said Sajid Javid, Economic Secretary to the Treasury. “These reforms will ensure that remote gambling operators who have UK customers make a fair contribution to the public finances.”