As predicted in our pre-Budget special, the Government yesterday announced plans to introduce a point of consumption ("POC") gambling duty regime and stated that this "is planned to be introduced in December 2014", which is later than some commentators had suggested.
As stated in our previous note, the Government also plans to
introduce an amended regulatory framework (which will require
remote gambling operators, wherever they are based, to hold a
Gambling Commission licence in order to advertise, and provide
services, to British customers) at the same time as the new POC
gambling duty comes into force. These changes to the
regulatory regime will require primary legislation. However, as we
indicated, we do not see this as necessarily plain sailing for the
Government and our view has been somewhat reinforced by the
European Commission's letter, published earlier this week,
commenting on the most recent draft of the gambling rules proposed
by 15 of the 16 German states.
The draft law proposed by all German states apart from
Schleswig-Holstein stated that neither online poker nor online
casino games could be offered legally in Germany. The 15
states sought to justify this ban by saying that "in light of
the fact that such games are highly vulnerable to rigging and have
significant addiction potential, as well as the fact that they are
vulnerable to being exploited for the purposes of money laundering,
it does not appear to be justifiable to open up the internet as a
distribution channel".
In its letter, the European Commission commented that the
objective of combating criminal and fraudulent activities linked to
gambling is one of the public interest reasons capable of
justifying restrictions to the freedom to provide services under EU
law, but notes that "no data has been provided to adduce
evidence of the existence of the risks identified. In this
context, the Commission services would like to reiterate that the
suitability and proportionality of the measures in question needs
to be established to the requisite standard. In the context of the
assessment of whether such a standard is met, it would need to be
determined whether, first, criminal and fraudulent activities
linked to gambling and, second, gambling addiction are significant
problems in Germany and whether the ban of certain types of games
or gambling on the internet is capable of solving such
problems."
Applying that reasoning to the proposed new UK licensing regime
would suggest that it may not be sufficient for the Government
merely to assert that the new licensing regime is required to
protect British consumers gambling with offshore sites, but that
they may also have to provide evidence of the harm
suffered by British consumers justifying what may be regarded as an
obstacle to the freedom to provide services. As we indicated
yesterday, the Government has, to date, not produced any such
evidence but perhaps will attempt to use the Full Tilt affair to
assist their case in some way?
As expected, the Chancellor also announced the introduction of
Machine Games Duty ("MGD"), a new "gross profits
tax" for machines which is to replace the existing Amusement
Machine Licence Duty and VAT (gaming machines will now be moved
within the VAT exemption for gambling). The new duty will be
introduced on 1 February 2013. The rate of MGD, however, at
20%, was not as expected. Notwithstanding that the Government
had stated that "the introduction of MGD is not intended to
raise additional revenue", the rate is higher than companies
were expecting and many analysts have suggested that this will
result in material increased costs for both Ladbrokes and William
Hill.
The manner of the introduction of MGD demonstrates something of a
trend. The Treasury tends to consult on the mechanics of
proposed new gambling duties quite extensively over a material
period of time (which is to be applauded) but delays the
announcement of the rate until closer to the date on which the new
duty is to be introduced. This was also the case when remote
gaming duty was introduced in September 2007, to coincide with the
coming into force of the Gambling Act 2005. Then, as with MGD
now, a lower rate was hoped for and then, as now, the Chancellor
disappointed.
As we suggested in our pre-Budget note, it would seem reasonably
likely that some members of the remote gambling industry will argue
that the POC tax should be introduced on a twin rate basis.
If the trend referred to above continues, the machinery of the new
tax will be consulted on with draft legislation being published
well in advance (we have heard that the Treasury plans to publish
draft legislation later this year), but the rate or rates will be
withheld until shortly before the new tax is introduced. As
well as lobbying for a low rate of duty, operators who don't wish
to see the introduction of this new tax, may well seek to construct
legal arguments as to why either the new tax or the new regulatory
regime is unlawful in an attempt to block (or at least delay) the
introduction of the legislation.
For further information, please contact Stephen Hignett or David Zeffman.
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