On 1 May 2013, the House of Commons Culture, Media and Sport Committee (the Committee) published a report (the Report) on their pre-legislative scrutiny of the draft Gambling (Licensing and Advertising) Bill (the Bill). The Bill, as summarised here, proposes to address changes in technology and the market, as well as shortcomings, which have become apparent since the introduction of the Gambling Act 2005 (the 2005 Act). Since the 2005 Act came into force, gambling operators with remote gambling equipment located in the UK have been required to hold a UK gambling licence and to pay a 15% levy on gross profits. The issue is that operators with equipment located outside of the UK in regulated jurisdictions such as the EEA, Gibraltar or one of a "White List" of other states judged to have suitably robust regulation (Alderney, the Isle of Man, Antigua and Barbuda, and Tasmania) have still been able to advertise and provide remote gambling services to UK residents without shouldering the UK's licensing (or tax) burden. This (unsurprisingly) led to a mass exodus as UK companies scrambled to move the remote gambling arm of their business offshore to more favourable tax regimes. At the time of writing, only one major operator, Bet365, remains in the UK.
The new Bill seeks to rectify this problem and to bring the big UK gambling operators back into the remit of HMRC and the UK Gambling Commission (the Gambling Commission) by introducing point of consumption regulation, whereby remote gambling operators with facilities capable of being used in the UK will require a licence and, in the words of the explanatory notes to the Report, "also [to] contribute to UK gambling tax".
In the Report, the Committee consider the responses to a consultation on the proposed legislation and provide further pre-legislative scrutiny of the proposed Bill.
Contents of the Report
The Committee begin by outlining the Government's reasons for reviewing the regulatory regime:
- changes in the online gambling market (particularly changes in format which are more conducive to problem gambling);
- risk to customers caused by the uncertainty inherent in differing licensing regimes (such as whether bets are considered to be legal contracts and thus enforceable); and
- dangers of match-fixing (including concerns that operators are not required to share data with sports governing bodies and as such there is very little reporting of suspicious transactions (at least until after the match has taken place).
The Committee then go on to summarise the opposition's responses to the draft legislation. Industry Lobbyist, the Remote Gambling Association (RGA), a London and Brussels-based trade association, represents the major opposition to the Bill. The RGA sees the Government's proposals as using social policy concerns to mask the preparatory steps to introducing "an extraterritorial tax regime". The Committee counter this argument by stating that the Government's prime justification for the Bill is to amend weaknesses in the existing regulatory system and point to the fact that bringing all the major online gambling operators into the UK tax net is a mere consequence (albeit a consequence anticipated in the Chancellor's 2012 budget speech). Even if this is the case, the Committee see the harmonisation of taxation as a "legitimate and desirable outcome" of the proposed change in licensing law but nonetheless concede that any gambling tax should be set at a sufficiently low level to avoid driving business to the black market (and hence creating a less regulated industry).
In summary, the Committee finds that the changes in the online market, the increased risk to consumers and the dangers of match-fixing, combined with the fact that "even the most vociferous opponents of legislation did not argue that the principle was wrong, or that they would refuse to apply for a UK licence", are sufficient evidence that it is in the UK's interest to approve the principle of the draft Bill.
The Committee do not consider the Bill in final form and propose several amendments to the current draft. In relation to Clause 1, the Committee follows the recommendation of the High Growth Forum (an association of smaller, technology-focused companies in the remote gambling sector) to remove reference to the location of equipment altogether (as this risks fast becoming obsolete in today's cloud computing environment). Instead, they propose that the clause refer to "provision of facilities for remote gambling by persons present in Great Britain".
The Committee emphasises that proposed changes are not intended to result in all remote gambling operators around the world requiring a licence from the UK Gambling Commission. The Report states that this is "clearly not the Government's intention" and instead, the legislation should only apply to those companies which were "likely to be used by consumers in Great Britain".
The second amendment recommended in the Report is in response to a request by the National Casino Industry Forum to remove the current prohibition on offering remote gambling in casinos. The Committee agrees with this suggestion and notes that this change would address an illogical and inequitable anomaly in that remote gambling is currently available to members of the public on computers and mobile devices anywhere. It is difficult, therefore, to justify its prohibition in the highly-regulated environment of a licensed casino.
Compatibility with EU legislation
There has been considerable industry concern regarding whether the Bill is compatible with EU law. In their submissions, the RGA succinctly sum up why the draft changes may not fit in with the EU principles of mutual recognition and freedom of trade:
"A restriction on trade between EU states, such as changes to licensing regimes, is only permitted in limited circumstances. In relation to remote gambling, case law indicates that those circumstances include a requirement for greater consumer protection".
Several of the entities opposing the Bill allege that the Government has been unable to produce clear evidence of harm to consumers and, in the absence of this, a trade-restricting measure such as licensing (and consequently the payment of tax) is likely to be seen as a purely revenue-raising measure and thus incompatible with the Single Market. In response, the Committee state that the draft Bill is currently being scrutinised by the European Scrutiny Committee (the ESC), which has requested a more detailed summary from the Government on how the regulation of remote gambling proposed in the draft Bill fits in with the European Commission's aims. The Committee state that the Government's response to the ESC was that it considered the Bill "entirely consistent" with current EU proposals.
In our opinion, the Bill still bears the hallmarks of a tax grab, but this is unsurprising given the fact that this lucrative (and growing) source of revenue has all but completely vanished since the 2005 Act came into force. We anticipate that the best course of action for remote gambling operators should the Bill come into force is, rather than deregistering from their offshore locations (which will still benefit from favourable tax conditions for business outside the UK), they should establish UK subsidiaries providing services exclusively to UK consumers. Since the higher taxation will dent profits, this is likely to result in these subsidiaries offering less favourable odds to UK consumers, so offshore operators and the Gambling Commission may face an uphill struggle to prevent UK access to their services.
Just last week (8 May 2013), the Queen herself referenced the draft Bill towards the end of her speech in Parliament. The Report, plus the reference in the Queen's speech, confirms that the Bill's passage to Royal Assent is now unlikely to halt and the new point of consumption regime may become reality for any gambling operator wishing to provide services to the UK. Remote gambling companies would be well advised to carefully consider their options and obtain advice now.
 We interpret this as meaning that the Gambling Commission will initially pursue companies actively seeking a share of the hugely lucrative British market (whether by using a .co.uk domain name, targeted advertising online, or otherwise), or companies with an established share who choose not to obtain a licence but do not take necessary precautions to exclude UK users. We would, however, recommend that any remote gambling operator who chooses not to obtain a UK Gambling Commission license takes steps (such as blocking UK bank accounts and IP addresses, and ensuring that they do not purchase advertising which will be viewed by UK internet users) to show they are complying with the legislation when it comes into force.
If you would like further information, please contact the Edwards Wildman lawyer responsible for your matters or one of the authors linked above.