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02/08/13 - British Gambling Tax Plan Annoys Many in Gibraltar

GIBRALTAR — Gibraltar, the British territory at the tip of the Iberian Peninsula, has long been a political sore point between Britain and Spain. But now, in an Internet gambling dispute, it’s Briton vs. Briton.


Officials and executives in the territory’s thriving online gambling industry are crying foul over Prime Minister David Cameron’s plan to impose a 15 percent tax on residents of Britain who place bets on Gibraltar’s dozens of sites.


People here in this tiny outpost, which evokes England with its red phone booths and helmeted police officers, see the proposed tax as an unfair revenue grab by the London government. While Britain is responsible for the territory’s military and international relations, Gibraltar has significant autonomy over trade and industry issues, including the ability to set taxes. What Gibraltar cannot necessarily control is taxes that London imposes on Britons in Britain.


The tax would be “clearly against the common-sense logic of electronic commerce,” said Phill Brear, Gibraltar’s gambling commissioner. He said that about 60 percent of online bets by Britons were placed through Gibraltar sites. “We now hear a lot of talk in the U.K. about creating a level playing field. But you can in fact never level the field between high-street shops and online services.”


The proposed 15 percent tax, the same as that imposed on Britons who bet within Britain, would be a sharp markup from the 1 percent that Gibraltar currently levies. The plan, which Mr. Cameron wants to take effect by December 2014, would also make it compulsory for Gibraltar-based companies to have a British license to serve British clients.


Companies would thus face the same rules as betting-shop operators back in Britain, like William Hill and Ladbrokes. But William Hill and Ladbrokes are also active in Gibraltar’s online wagering industry, meaning they would get ensnared by the new tax.


The change would put “a huge and unwanted cost on our business,” said Steve Buchanan, who heads the Gibraltar operations of Ladbrokes.


Mr. Buchanan added that Gibraltar had other advantages, even if the new gambling tax were adopted. He noted that Gibraltar applied no value-added taxation on advertising and other activities essential to the gambling sector, unlike the 20 percent tax levied in Britain. When Betfair, another British operator, announced its move to Gibraltar in 2011, it said it would save £20 million, or $30 million, annually in taxes.


Before online gambling companies started settling here about 15 years ago, Gibraltar had only one casino, dating from the 1960s. Even now, this promontory of 2.6 square miles, or 6.7 square kilometers, commonly known as the Rock, in no way resembles Las Vegas or other neon-bathed casino capitals. Instead, it looks like a quaint English town — with the added flourish of a colony of macaque monkeys that is unique in Europe.


But online gambling is big business, as people around the world log on to place all sorts of bets. Recently, there was brisk wagering on the birth date and name of the royal baby and whether the international soccer star Gareth Bale would soon switch teams.


The industry represents about 15 percent of Gibraltar’s $1.89 billion economy, and gambling companies provide jobs for about 2,500 of Gibraltar’s 30,000 residents. Even with the worldwide financial doldrums, the business continues to grow. Four more Gibraltar-based operators entered the field in the last year, raising the total to 25 — each of which might operate several Web sites.


Ladbrokes, like other companies that operate in Gibraltar, manages its online business from a large, nondescript building, where employees sit in front of rows of screens, monitoring the casino games or tracking bets on soccer matches and horse races. Rather than a bookie shop, it looks more like the trading floor of an investment bank.


Now, the industry is gearing up for a fight, setting up a common legal fund to help pay for a court challenge in the European Union. Their argument is that the British tax is a protectionist measure that violates the Union’s free-market rules. Mr. Brear also warned in an interview that the new taxes would encourage gamblers to switch to less regulated online markets in the Caribbean and elsewhere, making it harder to monitor the activities.


“The model of prohibition and higher taxes has been tried before,” Fabian Picardo, the head of the Gibraltar government, comparing gambling tax proposal to the United States’ ban against alcohol from 1919 to 1933. “If the U.K. takes the tax approach that it is proposing,” he said, “it would be devastating for the U.K. itself.”


London sees the matter differently.


When the draft bill was published in December, the government emphasized the need to monitor gambling and the sector’s possible links to organized crime. Philip Graf, chairman of the British Gambling Commission, noted that his agency currently had limited control over “suspicious betting transactions” because it regulated less than 20 percent of online gambling by British consumers, who instead do most of their betting offshore.


“These proposals will ensure that British consumers enjoy consistent standards of protection, regardless of where a gambling business is based, and will also help the fight against illegal activity and corruption in sports betting,” the British minister for sport, Hugh Robertson, said last year when the draft bill was introduced

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A version of this article appeared in print on August 3, 2013, in The International Herald Tribune.

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