UK Confirms Secondary Licensing

Published on: July 19, 2011 

Last week the British media had reported that John Penrose, the minister for tourism and heritage for the Department of Culture, Media and Sport, was to present his proposal dealing with offshore online casinos before the parliament. Under the proposal offshore gambling operators seeking to cater to British customers would have to apply for a UK secondary license and pay an appropriate tax. Yesterday a Treasury official confirmed that the proposal was being considered but did not elucidate on the rate of taxation.

Economic Secretary to the Treasury, Justine Greening, told the media that she would review the case for the proposal of changing the taxation regime. It would not matter where the supplier was located. As long as the customer was located in the United Kingdom, Her Majesty’s Government would tax the operator. Greening was sensitive to the fact that the operators would also be taxed in their primary jurisdictions and would try to prevent them from being taxed twice.

Online gambling industry analysts have identified William Hill, Ladbrokes and Betfair as the operators who would bear the brunt of the secondary taxation. These operators had shifted their online gambling divisions to other EU jurisdictions in order to avoid the higher tax rates in the UK. The additional burden has been estimated at around £30 million a year.

The Isle of Man is one major jurisdiction that has licensed online gambling operators servicing the UK market. Therefore it is watching the developments closely. The chief online gambling regulator on the Isle of Man, Garth Kimber, downplayed the implications of the UK secondary licensing proposal. He pointed out that Penrose had said that those offshore online gambling operators in trusted ‘white-listed’ jurisdictions such as the Isle of Man would merit special considerations and that there would be no duplication of regulation.

Kimber also allayed another misgiving that the UK secondary licensing was in response to the Black Friday indictment of the three leading American online poker rooms. According to Kimber the need of secondary licensing arose because there are many online gambling operators from jurisdictions that are not perfectly regulated. These operators have been responsible for the rise in problem gambling in the UK and hence the need for secondary regulation.

Whereas one can agree with Kimber that Black Friday is not the reason for secondary regulation, the problem gambling reason offered by him is not tenable. Because offshore gambling jurisdictions had a lower rate of taxation, UK licensed operators were unable to compete. Hence online gambling companies like William Hill and Ladbrokes relocated causing a huge dent in the UK online gambling revenues. The secondary licensing is seeking to level the playing field to prevent further migration and also hoping that the prodigals will return.

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