Sunday Herald, The: Britain's online gambling hopes dashed offshore Tax levels threaten

BRITAIN'S aspiration to become a world hub for online gambling operations has been called into question with the revelation that existing UK online sports books are considering moving offshore.

The UK government had hoped that its new regulatory environment, which will offer online casinos and poker rooms licences in exchange for meeting consumer protection conditions, would have the added benefit of luring operators to move to British soil.

While many internet players are based in low-tax havens like Gibraltar, Alderney and the Caribbean, it was thought that having a British stamp of approval or kite mark would be considered a valuable marketing tool to gain the trust of new customers worldwide.

It was believed that existing UK online sports betting companies would take the opportunity to repatriate their businesses, which previously could not be UK-based.

With online gambling already worth more than pounds-5 billion a year worldwide, and expected to rise to pounds-12.5bn by 2009, there are significant potential job and tax revenue benefits. But evidence is mounting that these aspirations will not be realised because of the UK's uncompetitive business environment.

In a reversal of fortune, some British medium-sized online sports books have hired Global Betting and Gaming Consultants (GBGC) to investigate the merits of moving offshore.

GBGC founder Warwick Bartlett, who is currently the chairman of the Association of British Bookmakers, said that it is simply far cheaper to operate elsewhere.

Internet sports books currently pay 15-per cent gross profits tax.

"There are several companies I'm speaking to that are based in the UK and are thinking about leaving, " said Bartlett.

"You can go to a place like Antigua and pay a fixed sum per annum. There's no benefit in being here. A lot of these companies have developed brands that consumers find very credible, no matter what jurisdiction the company is based in." Bartlett's assertions are backed up by the Association of Remote Gambling Operators (ARGO), a London-based industry body representing online gambling players with business interests in the UK and the EU.

Clive Hawkswood, general secretary of ARGO, said: "There are UK- based internet companies that are looking into leaving. There are probably a half dozen sports books looking at it." He said that larger companies, who have betting shops and websites, have largely been held back from leaving because they did not want to break a "gentlemen's agreement", made with the government in 2001, to remain in exchange for a more favourable 15-per cent gross profit tax on betting. Hawkswood said: "Newer online and telephone betting operations, where the balance of their business is tipping more towards online casino or poker, aren't as worried about that." The probability of attracting big name internet casino brands to relocate to Britain also looks increasingly tenuous. Some companies, such as Gibraltar-based 888. com, are reserving judgement until the Treasury sets out the gross profits tax rate for online casinos later this year. However, a Europe Economics report said in March that anything over 2-per cent would be a non-starter for attracting operators. Bartlett, however, said that he got a "general feeling" that offshore players would still be put off by Britain's high corporation tax, VAT and labour costs.

A spokesman for PartyGaming, the online poker business planning a pounds-5 billion flotation on the London Stock Exchange, said: "We don't have any intention of moving onshore back to the UK. We are very much established in Gibraltar. It's where our servers are and we have a very good relationship with the regulators there." PartyGaming paid a corporation tax rate of 6-per cent in 2004 compared with the 30-per cent rate in England. It is understood the company believes it will be able to deliver greater shareholder earnings if it remains offshore.

julia. fields@sundayherald. com