Place of Consumption tax - Numis thoughts

I received this note today from Ivor Jones, the gaming analyst at Numis. I thought it was a perspective which a number a readers of my blog would be interested in but would not otherwise have access to. I therefore asked if he minded my reproducing it here. Everything that follows comes from his paper.

We believe that the UK Government will fail to introduce "point of consumption tax"; gaming duty charged on gambling transactions originating in the UK. But we can not be sure. Today we watched proceedings in Parliament and we came away a little more confident we are right.

Today the DCMS Permanent Secretary was a witness before the CMS Select Committee. He was asked, in a number of different ways, to justify the change in the UK regulatory regime. He was not, in our view, able to do so in terms of identifying current problems.

He said that the Government was taking a "prudent approach in which one anticipates risks and seeks to prevent them becoming serious problems".

He said that the Government was concerned that new jurisdictions in Europe would have regulatory regimes which would not provide adequate or consistent regulation. However, he also appeared to acknowledge that most UK-facing operators operate under effective regulatory regimes.

Will the change in UK law will be acceptable under EU law? In summary EU law requires such a change to be justified in terms of effectiveness and proportionality. The detailed legal case is well put in bwin.party's evidence to the Select Committee:

"The CJEU held that: "[I]f a Member State wishes to rely on an objective capable of justifying an obstacle to the freedom to provide services arising from a national restrictive measure, it is under a duty to supply the court... with all the evidence of such a kind as to enable the [court] to be satisfied that the said measure does indeed fulfil the requirements arising from the principle of proportionality". CJEU 30 June 2011, C-212/08, Zeturf, para 70"

... operators from white-listed jurisdictions feature equal or better levels of minor and player protection than UK operators. Therefore, given the fact that most online gambling operators which target the British market have suitable consumer protection policies in place we consider that the UK's intention to turn from a liberal online gambling regulation to a regime where all operators have to hold a licence is unlikely to pass the proportionality test under EU law."

If the Government had chosen simply to introduce a new tax regime for online gambling, applied consistently to all operators regardless of where they are licensed, then we believe there would limited basis for the objection based on EU law. However, in running the change in licensing in parallel with the change in taxation, we believe that it is more likely than not that the Government will not be able to put through the change in duty regime.