The chips are down for an online gambling rout
There are fears among the gambling industry that the almost tax-free - and totally legal - status enjoyed by the off-shore gaming industry could be drawing to a close...
Losing game: Gambling firms may soon lose their appeal.
Bright logos and promises of untold riches are everywhere to lure the gamblers.
The adverts appear during the breaks on television, next to the rugby pitch, sponsoring horse races and even plastered over the shirts of football players.
Millions of pounds every year are spent by companies such as Sportingbet, Party-Gaming, 888.com, William Hill and Ladbrokes on promoting their websites.
Yet those millions of pounds are available only because of the highly generous tax breaks that these companies enjoy by virtue of being located in a variety of offshore tax havens - from the Channel Islands to the Isle of Man and from Gibraltar to Malta.
None of the companies pays more than one per cent tax compared with the 15% they would face on the British mainland.
But their luck may be about to run out and there are fears within the industry that the almost tax-free - and totally legal - status enjoyed by the off-shore gaming industry could be drawing to a close.
Within weeks the Department for Culture, Media and Sport is to announce the longawaited results of its consultation into regulating remote gaming - offered through the internet and via phones
It is expected to announce that in line with other European countries, every offshore gaming company must get a British-specific licence on top of the one it will already have from the country where it operates. If they the theory goes, they should be licensed here.
The industry is generally relaxed about this as most companies are licensed in countries that already have strict regulations. They will just have to bear the cost of getting an extra licence.
But alarm bells are ringing as many see this as the first step towards changing the tax regime covering offshore companies.
'People are assuming that the licensing regulation will lead to changes in taxation,' said one industry source.
'It's the thin end of a taxation wedge. At the moment, offshore gambling operators pay next to nothing in tax, which is why they went offshore in the first place.
'But there is an expectation that the rate could be put up to match the 15% which UK-based operators currently pay. We'd be amazed if the Treasury wasn't already looking at this.'
High Ranking officer: Rank CEO Ian Burke.
Ian Burke, chief executive of Rank Group, which bases its offshore operations in Alderney in the Channel Islands, said: 'Many European markets are moving to regulating and taxing online gaming and it's inevitable that the UK government will look at changing the offshore tax regime.'
The effect of paying 15% rather than one per cent could be highly significant.
First, there is the direct economic impact to consider. Practically every single operator in online gaming is offshore, from the purely online companies such as Party Gaming and 888.com to the more traditional players such as William Hill, Ladbrokes, Betfred and even the State-owned Tote.
The rare few that still have online operations based in the UK include Bet365 and betting exchange Betfair, although the latter is currently considering whether to decamp.
Companies could be hit to the tune of millions of pounds each, depending on how big their offshore operations are.
Burke warned: 'Weaker companies would disappear as their business model would no longer be sustainable.'
Clive Hawkswood, chief executive of the Remote Gambling Association, said any tax changes would 'clearly hit companies hard'.
He added: 'Some online casinos have a payout rate of about 97% so there is no room to withstand such a jump in tax.'
To survive, said Hawkswood, they would have to cut back dramatically on marketing, which has been lucrative for the media and sports industries.
Analysts reckon that the online gaming sector is worth about £1.5bn a year. With some companies spending about 30% of their total revenues on advertising, there is a lot at stake.
Many of the major operators such as Rank and William Hill say they are happy to pay more tax, but only if the entire industry does the same. 'We're not arguing against changes in taxation,' said Burke, 'but we want to see it done across the board, not in the patchwork quilt it is now.'
For example, Burke said that roulette, one of the classic casino games, was taxed at anything between zero per cent and 50%, depending on where the game was played.
Gross profits from roulette attract no tax online, but a small casino would have to pay 15% tax while Rank's flagship Victoria casino in London, which has greater revenues, would attract the top rate of 50%.
Burke said: 'This Government seems to be in favour of simplifying the tax regime for some aspects of gambling and we'd urge them not to do it in a piecemeal way. We'd rather have a flat rate across the board and for the effect to the revenue to be the same.'
Once the Department for Culture report is released, Hawkswood said he 'would be very quickly engaging in talks with the Treasury about its plans'.
Licensing changes would need legislation and the Government already has a packed timetable. But no one is betting against the end of the gaming tax havens.
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