Gambling operators face losing their licence for failure to abide by new 'place of consumption' tax regime

Out-Law News | 20 Aug 2013 | 10:46 am | 4 min. read

Gambling operators could lose their licence to advertise and trade in Great Britain if they fail to comply with a new tax regime where liability for UK tax is based on the location of the customer rather than the gambling operator.

The Government has set out draft legislation which would create new rules on how tax is applied to bets or gambling stakes placed remotely (56-page / 526KB PDF), such as over the internet or by telephone. The Government intends a new 'point of consumption' tax framework to be introduced so the liability to pay tax on profits generated from customer bets and stakes is calculated on the basis of where the person placing those bets and stakes usually lives.

The proposed rate of tax on remote gambling profits is 15%, although a final decision on the rate is not expected until the Chancellor's 2014 Budget. The Government said the new tax rules are expected to bring in approximately £300 million in additional tax revenues.

Under the plans the obligation to pay tax would apply where there are arrangements between a gambling operator and a "UK person" for that UK person to participate in remote gambling, subject to some limited exemptions.

A 'UK person' is defined as either "an individual who usually lives in the United Kingdom, or a body corporate which is legally constituted in the United Kingdom", according to the draft legislation. The proposals set out a power for the Treasury to amend this definition and to provide guidance on the steps to be taken to establish whether an individual is a 'UK person' for the purposes of the framework. Notably in some circumstances there will be a presumption that an individual will be a 'UK person' for the purposes of the regime if there is "a failure to produce sufficient evidence to the contrary".

Gambling law expert Susan Biddle of Pinsent Masons, the law firm behind Out-Law.com, said that gambling operators already undertake activity to find out where customers are based.

"There are already 'know your customer' obligations that gambling operators must adhere to," Biddle said. "Those holding a casino operating licence from the Gambling Commission must comply with the UK Money Laundering Regulations, which require individual gamers' identity to be verified before those people can play, whether via online or physical casinos. This regime looks set to be expanded through the draft new EU Anti-Money Laundering Directive which would, if introduced, trigger checks on transactions to all 'providers of gambling services', not just casinos."

"Compliance with anti-money laundering rules is also a condition of the operating licences the Gambling Commission issues to betting companies, and all operators regulated in Great Britain must take steps to keep financial crime out of gambling in line with the licensing objectives of the Gambling Act," she said. "Even if gambling operators are based abroad and regulated elsewhere within the European Economic Area or in a 'white listed' jurisdiction, they are likely to be subject to similar anti-money laundering rules."

"Gambling operators will also want to know that their customers are aged 18 or over, and there may be commercial reasons why operators would be keen to know where their customers are based. For example this may be to ensure they don’t inadvertently take business from players in the US or from another country where the operator does not want to do business – the operator may have its own reasons for such country limits and/or they may be imposed by the supplier of the software used by that operator," Biddle added.

The expert said that operators have used a number of means to establish the identity and location of individuals who play with them under the 'know your customer' obligations, including the information given by the player, IP address systems, credit card account number codes and geo-location data. She said that these methods cannot guarantee 100% success, but seem generally to have worked adequately so far.

"In terms of the Government's proposals, clarity is needed on how to determine whether someone 'usually' lives in the UK. The expected guidance will hopefully explain what is "usual" – it will be interesting to see how this new test of "usually living in the UK" relates to the 'residency test' and 'usual place of abode' which apply in relation to other tax legislation," Biddle said.

In separate but related proposed reforms to remote gambling regulation led by the Department for Culture, Media and Sport, gambling operators wishing to offer remote gambling services in Great Britain would be required to hold a 'remote operating licence' (ROL) in order to promote that service or do business with customers in Great Britain.

In "serious cases of non-compliance" with the new tax rules on remote gambling, remote gambling operators could have their licences revoked by HM Revenue & Customs (HMRC), according to the Government's proposals.

The revocation of a licence would only happen following the serving of an initial suspension of that licence. A range of "trigger points" have been set out to explain when a licence suspension would be justified.

"Following the suspension of a ROL, if an operator does not fulfil any outstanding tax requirements, HMRC will require the Gambling Commission to permanently revoke the ROL after six months (subject to any appeal made by the operator)," the Government said. "The decision to revoke will be made by HMRC rather than the Gambling Commission, and as such operators will be able to appeal to the Tax Tribunal before a licence is revoked. Full guidance on the licence revocation process will be issued by HMRC ahead of the implementation of the reform."

Other potential penalties for non-compliance with the obligation to pay tax on remote gambling include unlimited fines and imprisonment for up to seven years.

These could be issued where HMRC has asked for a "security" to be deposited by gambling operators for tax but none is provided, or alternatively where a company has failed to appoint "a joint and severally liable fiscal representative" when asked to do so.

"Sufficient opportunity will be provided for operators to provide a security, and a criminal conviction would only be sought in appropriate circumstances," the Government said. "Any decision by HMRC to require a security from a remote gambling operator will be accompanied by the statutory right to an independent review of that decision and the right of appeal to an independent tribunal." 

Editor's note 21/08/13: a change was made to a quote in this article.