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Reducing Costs Through the Effective Management of Indirect Taxes
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The number of EU gaming taxes has increased considerably
Deregulation and the relaxing of gaming legislation has increased licensing requirements and gaming tax liabilities
Now typically taxed in the jurisdiction where the customer belongs Place of consumption taxes becoming the norm
Whilst VAT is governed by EU principles, gaming taxes are currently legislated at National level
Lack of consistent approach No thresholds for gaming tax rates
Increased compliance costs
Potential additional cost of irrecoverable VAT on costs VAT exemptions
Rates of VAT typically between 20% - 25%
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France
► Place of consumption tax entered into force in 2010► Tax base is the gross stakes► Different rates for sports betting and poker
Ireland
► Application of betting duty to offshore betting (to date, betting duty has applied only to bets placed in betting shops) ► All bookmakers taking bets from Ireland will pay 1% betting duty. Betting Exchanges will also be subject to tax► The plans have been agreed by the government, but detailed arrangements for implementation and operation of the new system
are yet to be worked out
Italy
► To qualify for Italian remote gaming licence, operators have to be licensed and established within EEA State and have permanent link-up with AAMS' (the Italian licensing authority)
► Changes to basis of taxation to a tax at 20% of gross profits on casino and poker. Existing products continue to be taxed on turnover (sports betting tax rate down to 3.5% from 7.5%, Bingo – 12%)
Spain
New Gambling law came into force in May 2011 Different taxation structures for different types of gambling Most forms of online gambling face a gross profit tax. Fixed odds horserace betting at 25% gross profit tax as well as other fixed
odds games and exchange betting. Turnover taxes remain for sports pool betting (22%), as well as for horseracing pool and pari-mutuel bets (15%)
Denmark
Approval from the EU Commission that online gambling tax at 20% (significantly lower than land based casinos) does not contravene EU state aid rules
Malta
United Kingdom
General Betting Duty payable on sports betting at 15%, spread bets at 10%, financial spread bets 3% Pool betting duty of 15% on pool bets Remote gaming duty payable (15%) on other online gaming To be taxed where customer located rather than where supplier is established by December 2014
The current position – examples of EU gaming taxes
► Fixed monthly cost for casino games and lottery► Different rates and tax bases for sports betting and poker
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Tax rates differ across Member States and for products
Preceding slide is only an example of the more common jurisdictions Position becomes more complicated when other Member States (eg Belgium etc) are
included
Extremely complex for multi jurisdiction operators No harmonisation across Member States Different rates for each product Tax bases are inconsistent
VAT position can also create issues where operators have established business across a number of Member States
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Online gaming structures are typically multi jurisdicitional
Functions often established across different jurisdictions
Operational activity typically where licensed Marketing / back office could be UK Head office – jurisdiction where parent incorporated
Outsourced functions dependent on location of supplier
Complex structure for indirect tax liabilities
Irrecoverable VAT is an absolute cost Inefficient indirect tax arrangements can create unnecessary exposures
Ref. XX0000 DRAFT 6
4) Client
Database
Operational Processes
1) Promotions / Marketing
UK
2) Client Capture
Client List
5) Gaming Platform
8) Payment Account
RNG Result
13) Fraud Management
12) Customer Support
11) Technical Support
10) Financial Reporting
14) Disaster Recovery
(Hardware)
15)Top Co
Player Bank
Account
17) Affiliate
Database
7) Payout Management
9) CorporateAccount
Key
= Transaction flow
= Funds flow
= Manual process
= Data flow
= Operations
= Support services
= Third party
= Top Co
Bet
Result
6) PlayerPayment Service Provider
Funds
Funds
1
22
2
3
4
Location
LocationLocation
Location
Location
16) Affiliates Website
3) Client Identity Service
Provider
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Complex reporting creates challenges for operators
Place of consumption taxes require reporting across multiple jurisdictions Requirement to identify participation on a customer by customer basis Tax base may differ dependent on product; eg Stakes v Gross win How do we treat peer to peer games offered across Europe? Risk of double taxation
Place of establishment Human and technical resource requirements VAT registration and reporting liabilities Different VAT rules and regulations relating to gaming across EU
Statutory reporting requirements Reporting period end dates and submission of returns Language in which returns must be reported Levels of information required could create individual processes
Cost to the company
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Process alignment and commercial reality can drive indirect tax efficiencies
Are existing systems and processes robust enough to withstand change? Degree of flexibility required to distinguish customer and product information Ability to determine reporting period differences Sufficient interrogation of promotional and marketing costs Understand and remove duplicate processes to reduce operating costs Mitigate risk of penalty and interest charges
Consider commerciality of structure and arrangements Company brand and use of Intellectual Property Management services and back office support agreements Does indirect tax treatment mirror business activity
Additional indirect tax recovery leads to improved EBITDA
Outsourcing? Increased use of third parties for specific online gaming functions
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Relocation, relocation, relocation – does place of consumption tax remove certain benefits of being offshore?
Gaming taxes become payable regardless of where operator is licensed
However, gaming predominately VAT exempt across EU Creates additional VAT charges on operating costs and capex VAT charges between 20% and 25% of costs dependent on EU Member State Potential to also reduce VAT recovery on overhead costs of domiciled parent Irrecoverable VAT PLUS gaming tax could wipe out profit margin
Indirect tax liabilities should be looked at in conjunction with commercial arrangements Employment and property costs Location of suppliers and business partners
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In summary …………
Increased indirect tax liabilities leads to greater compliance costs
Are systems and processes robust enough to withstand the ever changing environment
Irrecoverable VAT represents an absolute cost to a business
Do current indirect tax liabilities reflect the commerciality and structure of operations
Efficiencies PLUS additional indirect tax recovery increase EBITDA
Location, location, location – establishment rules have changed
► 2 year secondment with Gala Coral Group advising on all VAT and duty issues.
► Online gaming - advises numerous clients on indirect tax matters associated with structuring operations in offshore jurisdictions such as Alderney, Gibraltar and Malta.
► Indirect tax advice on transactions across all sectors of the gaming industry including:
► £2.2bn acquisition of Coral Eurobet by Gala Group in 2005► Gala Group opco/propco structures in 2005 and 2007► £500m restructuring of a major UK gaming company► Sale side due diligence on offshore internet gaming platform► Buy side due diligence on AGC’s and FEC’s, a UK casino group;
and a major online bingo operator
► Regularly writes published articles and thought pieces on indirect tax issues across all gaming industry sectors
► Key betting and gaming clients include: Gala Coral Group; Ladbrokes; Rank plc; Aspers Group; Carlton Clubs plc; Tipp24 AG; WMS Inc
► Key member of a pan-European network of betting and gaming specialists providing Assurance, Tax, and Advisory services to the industry.
Gavin WestLevel DirectorDirect Tel: +44 (0)115 954 2548Direct Fax: +44 (0)115 954 2093Mobile: +44 (0)07976 547310 Email: [email protected]
► Gavin has over 14 years experience in indirect tax, including working as an Officer with HM Revenue & Customs as well as enjoying a secondment within the betting & gaming industry.
► Gavin is responsible for leading indirect tax services to the betting and gaming industry across UK and Ireland and has a key role as part of a wider management team implementing and delivering the firms strategy in this area.
► During his 11 years working within the betting & gaming sector Gavin has gained experience of working with all key stakeholders including operators, regulators, trade associations ; HMRC, Treasury, leading Counsel, and solicitors and professional advisors;
► As a result of his industry experience. Gavin has developed skills across all indirect taxes in relation to matters and issues affecting sectors of the gaming industry, both online and offline.
► In addition to advising clients in relation to VAT and gaming duties, Gavin has also developed a good working knowledge of gaming legislation.
Background Experience
Skills
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