UK faces legal challenge over new POC tax

The UK is facing potential legal action from Gibraltar-licensed online gambling businesses over its proposal to introduce a point-of-consumption (POC) tax for online gambling next year.

William Hill CEO Ralph Topping has said he has received “encouraging noises” from its lawyers that the company would have a strong legal case against the POC levy, which proposes to impose a 15% tax on the UK profits of online gambling companies, according to the Telegraph, and has instructed the company’s firm Olswang to begin building this.

MPs in their report on the 2005 Gambling Act published last week welcomed the introduction of a POC tax to address “the failure” of the UK government “to set remote gambling taxation at a level at which online operators could remain within the UK and regulated by the Gambling Commission”, which has led to all but one of the UK major operators relocating their online businesses offshore.

However, UK parliamentarians also slammed “unclear” government proposals for the Gambling Commission to begin regulating UK online gambling from 2014, and cast further doubts over claims that consumer protection and not the desire to collect taxes was at the centre of the government’s drive to overhaul the regulatory system for online gambling by requiring all UK-facing operators to be licensed by the Gambling Commission from December 2014.

The Culture, Media and Sport Committee for instance said it had “seen no evidence that the existing White Listed jurisdictions posed a greater threat of problem gambling than UK or EU-based operators”. At present, operators licensed in the Isle of Man, Alderney, Antigua & Barbuda and Tasmania are able to transact with British consumers and advertise in the UK alongside those licensed in EEA Member States and Gibraltar. It also cast doubts over the competency of the Gambling Commission to assume regulatory functions from experienced overseas regulators such as Gibraltar.

William Hill’s lawyers are arguing that the proposed accompanying POC tax breaches European law because it is a clear attempt to restrict the free movement of goods and services for tax purposes. The Gibraltar Regulatory Authority is also understood to be considering taking the UK to court over the tax due to fears it could encourage online bookmakers and gaming operators to move their online divisions back to the UK, resulting in damaging consequences for the local economy.

While the government’s Department for Culture Media and Sport was careful last July when announcing the Gambling Commission’s enhanced role, as it had to under EU law, in terms of providing more consistent protection for gambling consumers than the regime it was to replace, the Treasury announcing its own informal review of the accompanying tax regime a few days later merely served to confirm suspicions within the industry that the licensing requirement was being introduced merely to pave the way for the government to introduce a new betting tax regime.

Hill’s presented a Deloitte-produced report to the Select Committee to support its view that the POC tax “had the potential to prompt significant growth in the size of the grey market”, and that levying this at the existing level of 15% of gross profit could lead to 40% of the industry leaving the UK market.

The Committee noted that bet365, the only major UK online bookmaker with a sizeable portion of its business taxed in the UK did not call for a cut in the 15% rate to stay competitive, and was “unequivocal in its support for the general change of policy”. However, it did also advise the Treasury that it still needed “to work with industry stakeholders to establish the correct level for online gambling taxation, taking into account the need to encourage companies to accept UK regulation and taxation and to discourage the formation of a grey market.”

While the UK’s regime under the UK Gambling Act upheld the freedom of services and establishment directives within Articles 49 and 56 of the EU Treaty by allowing offshore operators to offer egaming products and advertise into the country, a series of decisions by the Court of Justice of the European Union (CJEU) against private operators have eroded these rights in recent years, supporting the establishment of highly taxed licensing regimes for online gambling in Italy, France, and Spain.

According to the CJEU, Member States can now restrict private operators’ rights to offer gambling services across borders within the EU, often in favour of the incumbent monopoly, as long as their actions are “legitimate and proportionate” and can be consistently justified in terms of providing better protection for players from crime, fraud and addiction.

Casino Choice journalist

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One Response to “UK faces legal challenge over new POC tax”

  1. Jamie Mulberry says:

    Great article Casino Choice, the POC tax has been under discussion for some time, its great to get some clarity from your article. Personally I don’t feel the UK government stands a chance at 15% POC, I guess we’ll see…

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