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Gibraltar

The impact of the UK Government’s point of consumption proposals Who are the GBGA

Gibraltar and online gaming

The Gibraltar Betting and Gaming Association (GBGA) is an association composed of 23 Gibraltar based online gaming operators. It provides the Gibraltar gaming industry with a single voice on all the issues of importance to regulators, legislators, and key decision makers around the world.

Online gaming has been operating in Gibraltar for over 15 years with 23 betting and gaming companies licensed and with a substantive presence in Gibraltar. It provides approximately 60% of the UK’s online gaming demand.

All GBGA members are strictly regulated by the Gibraltar Gambling Commissioner.

What is online gaming Online gaming is a form of online entertainment conducted over the internet and enjoyed by millions of adults safely and securely from the comforts of their own home or increasingly, using their mobile phone or tablet device. Online gambling is popular and here to stay. In Europe, there are estimated to be 3.3 million regular online gamblers generating total interactive gambling revenue of over £8 billion per year. Globally, gaming is currently a £241 billion-a-year industry, approximately 9% of which is expected to be interactive in 2012, having risen from just 6% of the total in 2005.

More than 11% of Gibraltar’s workforce are working in the sector, with over 2500 employees. Significant revenue and economic trickledown effects come from online gaming’s presence in Gibraltar. Gibraltar has one of the most efficient, well respected and long standing regulatory regimes for online gaming in the world, combining effective safeguards with a competitive offering for consumers. Gibraltar’s regulation is exacting and stringent. It asks for more from its operators than in other jurisdictions including the UK, for example, in relation to the protection of minors. The proportionate nature and size of Gibraltar’s gaming regulation means that it excels in its regulation and is in a strong position to monitor consumer safety issues. The strength of Gibraltar’s regulatory regime is evidenced by the very low number of complaints against Gibraltar operators: fewer than 100 complaints were received from UK consumers in 2011 with only around 12 of these submitting formal complaints.


Point of consumption: what the UK Government is proposing

Point of consumption proposals: the unintended consequences

In July 2011, the Department for Culture, Media and Sport and HM Treasury announced plans to make changes to the remote gambling regulatory and taxation regimes.

The proposals will achieve none of the stated aims, whilst unintentionally damaging the Gibraltar economy, compromising consumer protection and upsetting the competitiveness of the UK’s and Gibraltar’s regulated online gaming industry.

Tax The Government intends to tax operators on the basis of customer location introducing a point of consumption tax on online gaming operators. This means imposing a gross profit tax on all online transactions that take place with UK customers. The rate of tax has not yet been set, but it could be at around 15%. HM Treasury has published its “Remote Gambling Summary of Responses” and a first draft of the key Finance Bill clauses for comment by 30 September 2013. The draft clauses will be published in the autumn of 2013 after which an 8 week technical consultation will follow. The tax proposals are likely to pass through Parliament in the Finance Bill (after Budget 2014) and to receive Royal Assent by June or July 2014.

Consequences of point of consumption taxation • Destabilise a key overseas territory Will lead to an increase of the black or unregulated online gaming market, creating market distortions and harming consumer protection. • Significant impact on the economy of Gibraltar With over 11% of the working population and over 2,500 people employed in online gaming and a further 800 support jobs. • Relocation and job losses Possible relocation of some of the operators with the loss of approximately 1,300 jobs and £20 million of Government revenue.

Regulation

• More operators moving to the grey market

The Government intends to make all operators providing online gaming services and advertising into the UK licensed through the UK Gambling Commission.

Deloitte report1 says that with POC tax at 10%, up to 27% of businesses could move to the grey market.

The Gambling (Licensing & Advertising) Bill will receive a Second reading in the House of Commons in the autumn, and the Bill is likely to receive Royal Assent by December 2013 or early 2014. The Government says that both these proposals form part of its aim to create a safer regulatory environment for the consumer and to raise UK exchequer revenue. It is aiming for a December 2014 implementation date of both the tax and regulatory proposals.

UK regulatory model: why change what works The UK already has a highly competitive industry that is a global leader: it is safe and works well for UK consumers, as well as being regarded as a model of excellence round the world. Changing such a model puts this at risk. The existing UK regulatory and taxation regime facilitates EEA and white-listed territories. GBGA members are regulated rigorously as EEA operators through the Gibraltar Gambling Commissioner. The Gibraltar Gambling Commissioner has engaged with the Gambling Commission to secure a Memorandum of Understanding with the UK as a continued commitment to co-operate and share information with the UK authority.

• Black/grey market will grow Recent economic analysis says if tax levels are set too high then this will encourage the growth of a black/grey unlicensed market in the UK. • Ineffective revenue raising Research by Deloitte1 has also shown that Exchequer revenue raising will not be particularly effective. • At least 20% unlicensed in the UK market HM Treasury’s own research suggests that at least 20% of the UK market will be unlicensed, unregulated and not paying tax as a result of POC tax going ahead. • More UK customers switching to offshore gambling Economic analysis supports this view and adds that the number of customers switching to offshore untaxed will be much higher than Treasury predictions. • POC model may set a precedent for a Financial Transaction Tax The point of consumption taxation model may set a precedent to other EU member states to impose such a tax unilaterally. This could have an adverse impact on the UK e-commerce and finance sectors.


Consequences of point of consumption regulation The GBGA is dismayed by proposals to change a UK regulatory model that works and is considered to be one of the best in the world.

What the GBGA would like to secure • Active engagement and discussion between the UK Government, the GBGA and the Government of Gibraltar to seek to achieve the UK’s stated objectives on both taxation and regulation, to accommodate our members’ concerns in a manner compatible with EU law.

• Harm to consumers and consumer safety The GBGA believes that the Gambling (Licensing & Advertising) Bill may actually harm consumers more than it benefits them. • Insufficient regulatory oversight in the new system Under the current Bill operators eligible for licences may themselves locate and may locate their equipment anywhere in the world which will allow some operators to place themselves and their equipment beyond the supervisory and investigative powers of the UK Gambling Commission.

• UK government support of Gibraltar and its economy at a time when it is in vital need of support from the UK. The proposals in their current form will only serve to weaken Gibraltar’s economic and territorial integrity, and Gibraltar needs the UK government to stand by it as an economically. • Continued regulation and taxation from Gibraltar – why change one of the most competitive, well regulated and long standing systems in the world - Gibraltar is is a role model across Europe and the world.

• Ineffective licensing

• Greater focus on EU harmonisation of regulation, common standards and open competition as well as stringent regulation and consistency across the EU.

Preventing print and media marketing will not prevent customers going offshore. Recent economic analysis suggests that the proposed new licensing rules will be ineffective and will not prevent consumers from migrating to using unlicensed operators. Modern day digital online and social media marketing methods provide ample opportunity to make operators’ presence known in other countries.

• The UK Government supporting and promoting the UK and Gibraltar industry across the world and defending it in the European Union – pushing towards a single market for gambling operators to create a transparent, highly competitive and safe market for consumers.

• No evidence that current system puts consumers at risk

Conclusion

There is no evidence and no examples have been provided by the UK government of “poor standards” in other jurisdictions, poor operator standards or of failure to protect consumers under the current Gambling Act.

UK consumers that use the strictly regulated Gibraltar services of Gibraltar based operators have access to the safest, best value and most competitive market in the world.

• Better ways of addressing risk to consumers There are better alternative routes to dealing with potential risks, such as only extending the White List system to regulatory jurisdictions where their models have strict and robust measures. • Government risks judicial review The GBGA is reluctantly considering the possibility of a judicial review as it believes that there are considerable grounds for such action if the legislation were implemented in its current form. The GBGA wishes to avoid such legal action and will strive to agree other solutions and alternatives with the UK government.

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Deloitte: The impact on a point of consumption tax on the remote gambling industry.

The UK government proposals will impair the successful functioning of this market and jeopardise both consumer protection and a well functioning, highly regulated market. The UK Government’s point of consumption proposals will have a large impact on a small economy: a significant redistribution of revenue to unregulated jurisdictions overseas is likely, that in turn will impact heavily on employment and the backbone of the economy in Gibraltar. The GBGA hopes that the significant damage that these proposals could cause to the economy of Gibraltar, consumer protection and the competitiveness of the UK’s and Gibraltar’s regulated online gaming industry can be averted.

£ £ £

A report for William Hill PLC, 30 November 2011

For more information please contact:

Sarah Kostense-Winterton KW Communications sarah@kwcommunications.eu Tel: +44 (0)7771 570808

Peter Howitt Chief Executive, GBGA info@gbga.gi Tel: +350 200 68450

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