Bookmakers will not closedown offshore operations

by David Kelleher, Ivan Brincat

Despite the British government’s decision to allow tax-free betting in the UK, British offshore companies based in Malta are not expected to return to the UK – to the relief of many locals employed here.
There are 19 licensed offshore betting companies, 10 of which are from the UK.
Presenting his government’s budget, the UK Chancellor Gordon Brown announced that the current tax of 6.75 per cent betting duty on bookmakers, which is then passed on to betting shop punters as a nine per cent tax, is being scrapped. Instead, bookmakers would be taxed on their gross profits at a rate of 15 per cent.
The changes come into effect from 1 January 2002.
The decision to change the law and allow tax-free booking comes about following a constant flow of losses for the UK government as betting companies went offshore to locations that offered better conditions such as Gibraltar and Malta.
In fact, speculation over the past few days that these companies could be forced to return to the UK in return for the tax changes, has given rise to uncertainty among those working for betting companies based in Malta.
Despite the change in the law, however, bookmakers are not expected to close down their offshore branches.
Finance Minister John Dalli told The Malta Business Weekly yesterday that he was still convinced that Malta was competitive in its incentives to betting companies in England despite the changes announced in yesterday’s budget by Chancellor Gordon Brown.
“The English government had forced English betting companies to move abroad because of taxes it imposed and now in this budget it is addressing this problem. This obviously changes the situation in which Malta operates.”
Mr Dalli however told The Malta Business Weekly that it was difficult for the companies that have left Britain to return even though they might now have an incentive to do so.
“It is not up to me to decide whether the English companies will stay in Malta or not since they have their own marketing strategies but I believe that Malta is still competitive in this sector especially following their experience here,” he said.
Mr Dalli’s comments were backed by George Debrincat, general manager of Unibet.com.
He said that although new laws may looking attractive, based on calculations received from the UK, Malta is still a very attractive location.
“I doubt that there will be an exodus from Malta. The local scenario is still attractive and companies here benefit from lower costs and cheaper services,” Mr Debrincat told The Malta Business Weekly.
“In reality the 15 per cent tax on gross profits has been calculated to be around 19 per cent. In Malta, each transaction is charged 0.5 per cent. Calculating the total revenue to the government, this works out at around 12 per cent on gross profits. So Malta is still a better deal,” he added.
Sources told The Malta Business Weekly yesterday that the general feeling among offshore betting companies in Malta is that they want to stay here because they feel Malta offers a better service and the island offers better terms and conditions.
The BBC reported yesterday that bookmakers were happy with the new taxes, however they stressed that they had no intention of closing down their offshore companies.
It is believed that bookmaker Victor Chandler’s move to offshore betting sparked the government’s action.
A spokesperson for the company told the BBC yesterday that despite the change, punters will still not have a “genuine tax-free option” seen in the offshore industry.
“I am delighted that almost two years to the day after we moved our business offshore, the chancellor has decided to abolish the ridiculously high level of betting duty levied in the UK,” read the statement.
“Victor Chandler will not close its offshore operation.”
“The betting duty cut announced yesterday will not stop UK punters betting offshore. The proposed 15 per cent tax on gross profits is simply another ‘stealth tax’.
“Regrettably, this looks like a hollow victory for the punters, as they will continue to pay – only this time they won’t realise it.”
Leading tax advisers Ernst & Young also called on the Chancellor to go further than the anticipated reform and reduction of betting taxes and abolish them altogether.
Caroline Artis, a leading adviser on global online betting and a partner at Ernst & Young, says: “By 2004 the European and US online sports book has been estimated to be valued at more than £3 billion. Rapid Internet penetration in Asia could make that market worth twice this by the same date. By scrapping betting duty, the Chancellor will be opening the door to a very large percentage of this business. He should use the Budget to not only attract back the businesses that have set themselves up offshore, but to establish an environment that will encourage more global online betting firms to come to the UK.
“The £400 million that the Treasury currently receives through betting duty can easily be offset by the increase in corporate tax payments and the knock on effect of new jobs and economic growth in a high value industry.”