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By Ben Stupples
Aug. 11 — The U.K. has published draft legislation on possible tax treatment changes to the country’s online gaming industry that aims to bring them in line with fixed-odds general betting.
Her Majesty’s Revenue and Customs said the new laws would remove the current tax imbalances between the two industries by making online gaming companies pay taxes in the same way as betting companies do on free plays that they offer to customers, according to an Aug. 9 consultation report.
Rebecca Griffiths, a London-based tax associate at international law firm Olswang, said the government is “levelling the playing field” with the gaming and betting industry, and she noted that online gaming companies have previously benefitted in the U.K. from “more generous tax treatment.”
“One consequence might be that operators change what is offered,” said Graham Chase, a tax partner at Olswang. “Instead of free plays, they may offer enhanced terms such as better chances instead. Tax always effects behaviour—sometimes in unexpected ways.”
Online gaming such as internet poker is subject to the U.K.’s remote gambling tax, while fixed-odds betting and pooled bets on horses and dog racing are subject to general betting tax, according to U.K. tax and accounting services firm RKG Consulting.
Free plays, such as free spins in bingo, are omitted in tax calculations for online gaming companies while they are included for betting companies under general betting duty. From August 2017, free plays from online gaming companies will have a taxable value for tax purposes under remote gambling tax, HMRC’s report said.
In line with betting companies, online gaming businesses have been taxed under remote gambling tax at 15 percent of their profits since 2014. The changes were made alongside the U.K. changing laws for the gambling and betting industry so that it was charged on the basis of consumption due to the offshore locations of online gaming companies. As a result, the industry was subject to receipts from U.K. residents regardless of the company’s location, said Olswang’s Griffiths.
The U.K. government’s changes two years ago helped to prompt a trend of consolidation in the online gaming industry. In September 2015, Paddy Power Plc settled the terms of its combination with Betfair Group Plc, agreeing to acquire its competitor for 2.87 billion pounds ($3.2 billion) in a deal that created the biggest publicly listed online gaming company and created an estimated annual pre-tax costs savings of 50 million pounds.
In the same month, GVC Holdings Plc agreed to buy Bwin.party Digital Entertainment Plc for about 1.12 billion pounds. GVC forecast cost savings through the deal of 125 million euros ($139 million) per annum by the end of 2017.
“The fallout from the changes introduced in 2014 has been that many online operators have had their profits affected,” Griffiths said. “Save in respect of pool bets and pooled prize gaming, it’s broadly a case of stakes in less winnings paid out and therefore operators may have duty liabilities even where they do not have an overall financial profit.”
A spokesperson for the U.K. Gambling Commission was unavailable for comment.
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Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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