Betfair moves to take on Treasury
Exchange sets up Malta office as counter to tax threat.
By Greg Wood / The Guardian
Betfair, the leading internet betting exchange, has received a licence to operate in Malta that could eventually lead to the company moving its hugely successful business offshore. The firm's move is sure to be seen as a warning to the Treasury that it will not tolerate any attempt to introduce punitive new taxes on its revenue.
For the moment Betfair's new office in the Mediterranean is planned solely to host a new betting product, which the company intends to launch later this year.
However, Betfair's executives are also aware that it would now be relatively easy to move the bulk of its operation to Malta and avoid the requirement to make duty payments to the British government on its revenue.
Since Malta is a member of the European Union, there would be no need to restrict Betfair's advertising and sponsorship in Britain, while it might also be possible to move its computer servers - where the exchange is "hosted" - to Malta while maintaining its main office in Britain.
At present Betfair pays 15% of its gross commission revenue to the Exchequer, in the same way that other bookmakers make duty payments of 15% of their gross profits.
However, the explosive growth of exchange betting over the past four years has been followed by complaints from traditional bookmaking firms that the system by which Betfair's duty obligations are assessed is unfair. These complaints looked to be heeded in March 2004, when Gordon Brown ordered a review of "the tax treatment of betting exchanges and their clients". This review is now thought to be close to completion.
A frequent criticism levelled by the traditional bookies is that a number of Betfair's clients are using the exchange to operate as bookmakers in their own right, but without the mandatory payments of duty and Levy that would normally be due.
Betfair's defence is that the exchange is itself the primary bookmaker, in that it ultimately accepts bets placed by punters and then ensures that winners are paid out. The commission it takes on winning bets therefore compares directly to the gross profit earned by a traditional bookmaker.
While the result of the Treasury's review may be the maintenance of the status quo, the move to take out an offshore betting licence is a clear sign that Betfair is determined to keep all its options open.
Possible options open to the review include a charge on so-called "non-recreational" exchange players, though this is widely thought to suffer from immense problems both of definition and identification of the punters concerned.
Another proposal mooted is the imposition of an additional tax on clients' winnings on top of the commission charged by the exchange, while it is also possible that the review will recommend a higher level of Gross Profits Tax be introduced specifically for exchanges.
Either proposal would inevitably have a huge impact on the all-important liquidity of Betfair's markets, and the company is convinced that those lobbying for such a change - primarily the major bookmaking chains - are doing so for wholly commercial reasons.
Officially, the exchange is insisting that the Maltese office will be a minor offshoot of its core business. "The licence we have obtained in Malta is linked to an exciting new product that Betfair hopes to introduce to the betting market later this year," Antonia Sharpe, Betfair's head of public relations, said yesterday.
"There is no reason to think that we intend to move the exchange business offshore."
However, at the top of the company, the Maltese licence is clearly seen as having an additional benefit as a warning to the government that any attempt to change its tax regime will be fiercely resisted.
Betfair's small group of founders, who retain control of the business ahead of a possible stock-market float, have already received a Queen's Award for Industry during their company's short existence and are keen to retain Britain as their base, but they may feel they have been backed into a corner.
This latest move has echoes of Victor Chandler's hugely significant decision to move his betting business to Gibraltar in the late 1990s. That brought home to both politicians and civil servants how difficult it can be to regulate cross-border industries such as betting in the internet age.
This article is a reprint from The Guardian. To view the original article, click here.
Bookmakers Reviews - 2005-05-11 12:14:21