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How will Brexit affect online bingo?
On 23rd June 2016 a historic referendum took place in which the British people voted by a narrow margin to leave the European Union. The repercussions of this decision will be felt over months and years, but what effect, if any, will it have on online bingo?
There is no Europe-wide licensing regime for online gambling; all UK facing gambling sites are already required to have a UK licence so this will not change (as long as the UK itself stays intact and is not broken up by Scottish independence or Irish reunification). However, until Brexit is actually complete (which could take years if some kind of transitional arrangement is put in place) the UK will need to comply with the EU 4th Money Laundering Directive (and bingo sites which have players from EU countries such as Sweden will still need to comply even after that). This is the first such directive to apply to online gambling and had to be enacted by June 2017. Unless you are a true high roller spending tens of thousands of pounds or more at online bingo sites, this is unlikely to have any noticeable effect on you.
Again, the specific tax that applies to online gambling transactions is the UK Point of Consumption Tax and not to do with any EU taxation rules BUT – and it is a big but – there are other taxes that the operators of online bingo sites have to pay such as VAT and corporation tax. While he was still Chancellor of the Exchequer George Osborne suggested that corporation tax could be slashed to encourage business in the UK, and while this would be beneficial to business in general it is also possible that the Treasury might see online gambling as a soft target for a tax revenue grab and actually increase the tax burden on the industry. Historically operators have avoided some of the tax burden by basing most of their operations in other jurisdictions and this brings us on to the third consideration which is……………
Gibraltar is a British overseas territory and tax haven which has long been an important base of operations for many UK operators including some of the biggest names in the market – for example, the Dragonfish servers are located there – and indeed, remote gambling makes up about 20% of the local economy. 30,000 people live in Gibraltar and thousands more live in (less expensive) Spain and commute over the border each day. This is good for Spain as well as for Gibraltar as it provides jobs to an area of Spain that has up to 40% unemployment in some places.
Spain has been claiming sovereignty over Gibraltar for years and the ink was barely dry on the ballot papers before it was doing so again, calling for joint control.
The problem with Gibraltar and Brexit is the Spanish border which at the moment is relatively open because of the UK’s EU membership. After Brexit, trade across the border and living in one country and working in the other would become much harder or even impossible. Alternatively if Gibraltar were to end up as part of Spain that would be even worse for the UK operators because Spain has a different and more restrictive licensing regime allowing Spanish language sites on .es domains only to operate within its borders. By taking control Spain might actually kill the golden goose!
The effect of Brexit on Gibraltar will take some time to be clear – as it is a similar but smaller problem to that of the border between Northern Ireland and the Republic of Ireland the solution may flow from whatever happens about that – but whatever it is, it is likely to have a financial impact on the operators with a significant presence in Gibraltar. It is hard to envisage a way forward that would not result in them having to shoulder a heavier tax burden or move elsewhere (Malta for instance) – or both. Even if no-one goes out of business much of the financial hit could end up being passed on to the players in the form of fewer bonuses and/or a lower return to player.
The citizens of Gibraltar voted overwhelmingly to remain in the EU – over 95% of them wanted to remain – and a mere three days after the vote the territory’s chief minister announced that he was in talks with Nicola Sturgeon over how Scotland and Gibraltar might work together, perhaps with other parts of the UK that voted to remain, to preserve the benefits of EU membership. This could even involve Scotland becoming independent, taking Gibraltar with it and inheriting the UK’s EU membership but there is not really any precedent for such a thing happening and who knows what would happen regarding the UK Gambling Commission and its licensing regime if it did; the vast majority of players at UK bingo sites come from south of the border due to there being only around 5 million people altogether in Scotland (less than a tenth of the UK population).
One possible scenario would see operators downsizing their Gibraltar operations and bringing them back onshore – especially if the corporation tax cut happens as this would make the UK itself something of a tax haven. While the effect on players would be fairly neutral, this would be good news for the local economy in places such as Sunderland, where Tombola has its HQ and Stoke on Trent, the home of Bet365. Indeed, in May 2017 Paddy Power Betfair announced the closure of its Gibraltar office but insisted that it was nothing to do with Brexit.
The only thing that seems certain regarding Gibraltar is the months or – probably – years of uncertainty that lie ahead- despite reassurances by the government of Gibraltar.
Freedom of Movement
Depending on what form Brexit takes, this could be a big issue for iGaming operators and not just because of the Gibraltar problem. Almost all possible types of Brexit would see UK nationals losing the right to move to and work in EU countries – including Malta. Currently there are more than 5000 British expats living on the island – more than 1% of its total population – and many work in its blossoming iGaming industry. Not only would operators with bases on Malta find it much more difficult to hire UK nationals, but those with associated businesses such as software consultancies would be unable to base themselves there. In the case of a hard Brexit, some or all of the UK nationals who are already living and working on the island might have to leave.
Update – May 2017
Although almost a year has passed since the vote and Article 50 has finally been invoked, none of these issues have really come any closer to resolution. What HAS happened, however, is that the Gibraltar issue has become very prominent indeed. It is important to understand that the EU has NOT given Spain any special veto over a UK-EU trade deal – like all the remaining 27 EU nations, Spain automatically has a veto over ANY deal with non EU members – but merely highlighted Gibraltar as a special issue (something which one might have expected the UK government to have been aware of but was not even mentioned in the letter sent to invoke Article 50).
In April 2017, 888 became the first operator to announce they were considering a move from Gibraltar to Malta because of Brexit.
The latest study suggests that Gibraltar could lose 20% of its trade as a result of Brexit and highlights the fact that 40% of the Gibraltar workforce crosses the border every day.
Update – June 2017
Prior to the June 2017 General Election, a hard Brexit seemed very likely, but since then there has been much talk about going for a softer version that would not be so economically disastrous. In particular, the DUP (a Northern Irish party whose 10 MPs make the difference between a minority and a majority government) are unlikely to favour a version of Brexit that creates a hard border (restricting the flow of goods and people) between Northern Ireland and the Republic of Ireland. There are over 200 road crossing points on that border and in excess of 2 million vehicular crossings a month and this means that not only is a hard border extremely undesirable (arguably even more so than a hard border between Spain and Gibraltar), there are doubts as to whether it can even be done.
The latest development in the ongoing saga of Gibraltar is the European Court of Justice ruling of June 2017. The Gibraltar Betting & Gaming Association had been seeking to have the UK POC tax ruled contrary to EU law, but the ECJ ruled that Gibraltar was not trading across a border when supplying services to players in the UK. Essentially the UK and Gibraltar have been ruled to be one and the same country as far as the EU is concerned and this will presumably make it much harder for Gibraltar to secure any kind of special status or bespoke arrangement, which in turn makes it much more likely that they will end up with a hard border with Spain and all the problems that come with that.