Will Online Poker be Lured to UK by 2% Remote Gaming Duty?

UK Chancellor of the Exchequer, Gordon Brown, will reveal a plan intended to encourage online gambling companies to get a UK gaming license yet remain at their present offshore location for tax purposes. These companies would also be exempt from paying the British Value Added Tax (VAT), the U.K's Daily Telegraph reported in an unsourced report last Friday.

Brown's only requirement is that the companies pay a small tax fee, perhaps as low as 2% or 3%, to be known as 'Remote Gaming Duty'.

Brown's plan is being offered because the UK recognizes that offshore gambling companies will not have enough incentive to relocate to the UK and be taxed on their gross wins. Yet the U.K. government would like to tap into the huge profits they see the offshore gambling companies making.

Substantial annual profits were recently announced by Party Gaming, parent of Party Poker (click here to read related article) and 888 Holdings, parent of Pacific Poker (click here to read related article). Both are quoted on the London Stock Exchange.

These profits were earned despite the dramatic loss of share value and re-strategizing caused by the passage of the Unlawful Internet Gambling Enforcement Act (UIEGA) by the USA in October 2006.

Like 888 and PartyGaming, the operations of many online gaming companies are located in places such as Gibraltar, Malta, Costa Rica and Antigua and Barbuda, whose economic survival relies on a combination of tourism and financial services. The companies receive favorable taxation as an incentive to remain.

Under the UK's new Gambling Act which goes into effect September 2007, these companies for the first time can move back to the UK and be fully licensed and regulated. Chancellor Brown will announce the tax rate such relocated companies would pay on gross wins in his budget on March 21.

But many online gambling companies have already stated they see no reason to relocate to countries like the U.K. which they perceive are high in regulation, taxation and "red tape", especially if it means they would have to pay a tax on their gross wins. Brick and mortar casinos pay taxes of up to 40 percent depending on their size.

This is even taking into consideration if their company is based outside European Economic Area and Gibraltar they must apply to the UK government if they wish to advertise within the UK, as reported by the Financial Times January 30 (click here to read related article).

The success of the plan depends on the exact level of Remote Gaming Duty, but Andrew McIver the chief executive of Sportingbet, parent of Sportingbet Poker, which is based in Antigua, said he intended to apply for a UK license if the duty was "a nominal amount".

The Telegraph quoted John O'Reilly, the head of online gambling at Ladbrokes, as saying he was pleased with the alternative deal, saying, "It's quite a breakthrough."

O'Reilly confirmed that if the rate were less than 3 percent, Ladbrokes would almost certainly sign up for a UK license. "We want to be regulated by the UK Government," he said .

Ladbroke's online gaming division generates 100 million pounds (US$196 million or 149 million Euros). So the move could generate between 2 to 3 million pounds (US$3.9 to 5.89 million or 2.98 to 4.47 million Euros) for the U.K. Treasury.

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