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Regulate by the whites of their eyes

Gibraltar has a low tax rate and is known as a centre for egaming - but don’t think that means you can set up a skeleton presence and make a quick Gibraltarian buck. Gambling Commissioner Philip Brear explains the rules.

Let’s get this straight: tax is low in Gibraltar, particularly if you are abusiness. VAT is 0 percent. Corporation tax is 10 percent. Locating there for tax is a legitimate aim of many businesses who have set up on the Rock. However, tax haven or a tax dodger’s delight it is not. It is strictly regulated.

In no area is this truer than when it comes to e-gaming. The industry has set up on the Rock since its inception about a decade ago, with Ladbrokes being one of the first companies to arrive with a telephone gambling operation. However, anyone thinking they can set up a skeleton operation to avoid paying tax will be disappointed. Philip Brear, Gibraltar gambling commissioner, has strong advice for start-ups wanting to come to the Rock. “We probably wouldn’t entertain you,” he says. “The Gib licensing policy for 16 years has been only to accept expressions of interest and applications from established and respected businesses – “ here he breaks into his own words rather than those of the official policy – “who have as much to lose as we have if they get it wrong.”

In practice this translates as Brear receiving over 200 applications for gaming licenses on Gibraltar during his six year old incumbency and rejecting 99 percent of them – including in particular the start-up community. “By definition they’re always the highest-risk operation, whether it’s sitting in a café or buying equipment. There are always exceptions but our strategy has always been: if you’re launching today, please go and prove yourself somewhere else first.”

This is why, compared to other tax-advantageous territories, Gibraltar has a low number of e-gaming companies licensed; under 30 are currently operating there. Criteria are stringent and the authorities have a reputation for ‘regulating by the whites of your eyes’ – if you’re not physically available on the peninsula, you won’t get through. “The Gibraltar model is that you actually exist here as a real entity,” explains Brear. “That requires you to establish a technical presence here, which in the case of remote gaming means key servers, plus a significant proportion of management presence and key elements of the operation managed or staffed here.” A business may have a huge European footprint, for example, but middle management in Gibraltar.

This has to translate into real people, and this in turn means pumping real money into the local economy. Ladbrokes has 120 staff on the Rock, Victor Chandler 450. By the time you’ve added up all of the direct staff the total is about a couple of thousand people. Add the ancillary benefits to the territory such as the retail, real estate and other areas they will consume and you realize what a significant part of Gibraltarian life e-gaming comprises when the total population is just under 30,000.

And it can’t be overstressed, having a physical presence is an important part of the gaming industry’s culture on Gib. “We have to explain that carefully because sadly, in some jurisdictions, they care less where the operator is based,” explains Brear. This sounds fine and is feasible technically, but isn’t much use when there’s an issue to pursue and Brear’s team needs to visit a manager. They can be in another jurisdiction completely, making the journey inconvenient and any enforcement impractical. “We like to touch and feel what we’re regulating,” he says. “Rightly, gambling is a regulated industry, it carries consumer risks. If you’re not exercising the right degree of caution, recent history tells us you’re inviting problems for the jurisdiction, the consumer and the regulation of the industry,” he says.

Licensed companies must keep the authorities up to date on their suppliers as well as their own business. If someone establishes a business in Gib and wants to change partners such as a major software supplier, or a software supplier changes ownership, for example, it has to be reported. As far as possible the authorities keep tabs not only on the companies with licenses but the entire web at whose centre they sit.


A means by which the authorities can keep a check on e-gaming companies is through monitoring and investigating customer complaints. The system is open and simple; anyone who is not satisfied about how any Gibraltarian operator has dealt with them is welcome to contact the regulator.

The procedure is straightforward; the complaint is received, the member of staff at the Gambling Complaints Commission evaluates it and sends a response to both parties for feedback. Following feedback he or she sends a final determination letter to both parties, with an assurance that they can engage direct with the gambling commissioner if need be. On the odd occasion Brear has dealt with a case he has mostly found more evidence to support his staff’s original conclusion rather than information suggesting it should be overturned.

“What’s remarkable,” says Brear, “is that we have under 30 licensees, probably 10m customers between them and we actually hear from only about 200-250 customers per year who want to make a complaint.” They are offered an advice note which advises that experience has shown that most complaints are as a result of a customer himself or herself breaching terms and conditions.

For example, a company might offer £30 worth of free bets to first time players; existing customers setting up a new email address and attempting to register as a new customer when they already had an account under their old one will fall foul of this. People willing money under false names for whatever reason also find themselves legitimately shut out by legitimate terms and conditions. Inevitably a handful of the complaints are genuine. “We get about 20-25 a year which have traction but the majority are because the customer has done something more devious than a simple fraud,” says Brear. As this supplement went to press, for example, his staff were investigating a situation in which some people in an Eastern European state had found a way of interrupting the information flow between a gaming operator and one of its systems; they won a substantial sum of money as a result and investigations proved the names and the locations given were false.

Brear deals with the legitimate cases seriously. Some are down to misunderstandings or staff training. For example a gambler might phone in and asks to be taken off the system. Brear posits a situation in which a customer has been a client for five years, lost £10,000 and wants to be taken off completely. “Technically the manual says if you don’t ask to be ‘self-excluded’, in other words locked out completely for six months, you can just close the account.” However the staff won’t be psychologists and phone calls or Internet chats can be misunderstood. The customer service agent may simply close the account rather than block it, allowing it to be reactivated. “The customer comes back a few days later, sees the account can be reactivated, does so and loses another £150 and complains they should have been locked out,” says Brear. “So we might conclude that the staff should have applied a bit more judgment in that case.”

Self-exclusion as a piece of jargon is a joint agreement between the gambler and the company, with the company understanding that the gambler is likely to try to get back; however, the term tends to get used loosely. “A lot of customers use it just to manage the vast number of accounts they have,” says Brear. It’s not uncommon for people wanting to take advantage of more than one introductory offer or better odds to join as many as 15 gaming sites. “So when they call [and ask for self-exclusion] they may just mean ‘close my account down’ – it’s a technical term that leads to difficulties.”

Inevitably the bottom line is that the house always wins – a cliché but one that keeps the gaming companies in business. Complaints therefore include the ‘number seven never comes up’ or the ‘this game is fixed so I don’t win’ complaints. These are easily dismissed with a quick examination of how many people actually emerge with more money than they entered. “Our advice is that the customer is not supposed to win – if you’re playing roulette at 10p a spin and someone can win £10,000, you have to lose a lot of 10ps to pay for that guy’s prize.”

Complaints serve the regulators as well as the consumer. “It’s a fantastic way of getting a window into what’s happening in the industry,” comments Brear. If, for example, one company is getting more than the average amount of complaints over a typical issue, it’s probably worth looking into. And if a particular category of complaint becomes common for one operator, it’s probably worth checking the others as well.


At the operational level, when something goes wrong the regulators use recommendations rather than any big stick approach. “We don’t need to go any further than that. If we recommend that an operator pays the money, or some money, I can confirm that they have never demurred from that recommendation.” In cases where there is something more systemic needing to be done – say a cost around changing processes, or a rubbing point between a promotion and the marketing department, then the regulators will write a stiff letter or revisit the organization to ensure action happens. Theoretically, if an operator were persistently raising regulatory issues, special terms could be inserted into their license (with the agreement of the Minister) – following this suspension of a license and its subsequent withdrawal at renewal time are all possible. This has never happened in practice. “We don’t actually have direct powers to impose a financial penalty, but we haven’t needed one,” says Brear.

Overall the system seems to work pretty well, and Brear gets back to the small number of operators. Licensing fewer than 30 means you’re unlikely to have an avalanche of complaints unlike other territories which might get a considerable number. “If I had 1000 complaints a year I might feel differently – I might let the operators deal with their own complaints and come and pick a couple of samples to look at. Would we have had the PPI crisis if the banks’d had a proper complaints process? Do you think people weren’t complaining for 20 years? People were making complaints which were going into the banks’ black hole and nobody was collating them. If someone put in that level of complaints to us, we would see it.”

In fact the biggest issue facing the local e-gaming market comes not from Gibraltar but from the UK in the form of the new proposals for tax at the point of consumption. Elsewhere in this supplement Hon. Albert Isola MP puts the case from the politician’s point of view; Brear feels more strongly if anything. “Gambling is not a sexy issue, it’s not a headline issue, and there’s a danger these measures are drifting through the political process without the level of scrutiny they need,” he says.

The Point of Consumption proposals, he believes, fundamentally alter licensing arrangements, regulatory arrangements and tax arrangements for the UK and also for the world. “The UK is setting itself up as a potential global hub for online gambling,” he says. Which is fine if it has the right skill, wisdom and resources – or if you’ve grown with the hub and understand how and why it works and where the risk elements fall. There might be fallout for Gibraltar if the UK became a gambling hub but that’s not where Brear says his objections are.

He cites elements including the first draft of the Bill, which stipulated that any piece of gaming technology capable of being used by UK citizens had to be licensed and therefore subject to tax. “So if I have an Australian website and a UK consumer can sign up, I’ve got to get a UK license and pay UK tax?” For ten years, he says, Australian companies have been able to offer betting to UK citizens without even an Australian license. Expecting them to get a license in the UK – even were this enforceable – is optimistic.

Following Brear’s input into the select committee in charge of the Bill, that part at least was changed. However, at a meeting between the Gibraltar chief minister and John Penrose, then the Minister in charge of the bill in the UK, it emerged that there was a plan to fast track organisations already licensed in reputable territories such as Gibraltar to UK licensed status. “Afterwards I said, that’s just a ridiculous statement.” What happens, he asks, to an organisation that has been licensed in one territory but turned down by another? There are currently license holders in licensed jurisdictions who are subject to organized crime investigations from the US Department of Justice and the FBI but as license holders in reputable territories, they could logically be fast tracked into the UK, he suggests. Members of some US gambling sites are still on the run from the FBI, he says; there are Dutch companies under investigation but logically the Minister’s brief suggested they would be fast tracked.

That wasn’t the only issue. “When we saw this bill, in January this year, it abandoned any notion of a UK licensees requiring a UK presence. This would be to facilitate American interest. But a new UK licensee can have its base elsewhere completely.” A number of US operators would fulfill all of the UK license requirements and be thoroughly honest, Brear suggests; but then the operator in the Phillipines, or Moscow, or Costa Rica, can also apply. “If you read the 300-word Bill, it says in simple terms that if you apply for a license you get it unless the records show you’re not fit and proper.” So, logically, companies in territories where there is no need for a license – and therefore no record against a business for any wrongdoing – could apply and by default start operating in the UK. “There isn’t going to be the right information on whether someone is fit and proper,” adds Brear. “The FBI isn’t going to hand their intelligence over, the UK Government has no right to ask for it. Everything that gambling regulation is supposed to stand for, to make it safer, is undermined by this Act – how do you make it safer by inviting in applications from the other side of the world?”


by Guy Clapperton

Photo: Getty
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Gibraltar - impact of Brexit

Last week our editor took a general overview of some of the scenarios for Gibraltar if Britain were to leave the Euro. This week, as the atmosphere in the British Conservative Party becomes ever more toxic, Michael Castiel, partner at Hassans lawyers on the Rock, goes into more detail (this piece written before the Iain Duncan Smith resignation and subsequent arguments happened).

However unlikely it may prove, the prospect of Britain's withdrawal from the EU sends shivers through Gibraltar's financial services, gaming and tourism industries, which are at the core of Gibraltar’s economy. For, if Britain leaves the EU, Gibraltar goes too, and, should Brexit occur, it is Gibraltar’s relationship with the UK that as in the past, largely will shape Gibraltar's future.

Gibraltar joined the European Union in 1973 as part of the UK. While rights to freedom of services across borders of EU member states apply between Gibraltar and the rest of the EU, because Gibraltar is not a separate member state (and is in fact part of the UK Member State) those rights do not apply between Gibraltar and the UK. Instead a bilateral agreement, formalised almost two decades ago, gives Gibraltar's financial service companies the equivalent EU passporting rights into the UK. Accordingly and pursuant to such agreement, where EU rights in banking, insurance and other financial services are concerned, the UK treats Gibraltar as if it is a separate member state.

This reliance on the special relationship with the UK is recognised by both the Government and the Opposition in Gibraltar, and when the territory (which in this instance as part of the UK electorate) goes to the polls on 23 June, the vote to remain in the EU is likely to be overwhelming. This may have symbolic significance but realistically seems unlikely to influence the outcome. In actual terms, although some non-EU jurisdictions use Gibraltar and its EU passporting rights as a stepping stone into Europe, almost 80% of Gibraltar’s business dealings are with the UK.

But whether or not Britain maintains the 'special relationship' with Gibraltar, if Brexit becomes a reality, other factors will come into play, with the ever-present Spanish Government’s historic sovereignty claim over Gibraltar topping the list.

Recently Spain's caretaker Foreign Minister Jose Maria Margallo went on record that if the UK voted to leave the EU he would immediately 'raise with the UK the question of Gibraltar.' If this was to come about it could take one or more of several different forms, ranging from a complete closure of the border between Spain and Gibraltar, demanding that Gibraltar passport-holders obtain costly visas to visit or transit Spain, imposing more stringent border controls, or a frontier toll on motorists driving into or out of Gibraltar. The latter idea was in fact floated by the Spanish Government three years ago, but dropped when the EU Commission indicated that any such toll would contravene EU law.

Here, again, imponderables come into play, for much will depend on which political parties will form the next Spanish government. A Spanish government headed by the right wing PP party is likely to take a less accommodating attitude towards Gibraltar (the Foreign Minister having recently indicated that in case of Brexit the Spanish Government may opportunistically push once again for a joint sovereignty deal with the UK over Gibraltar) whereas a left of centre coalition will likely adopt a more pragmatic and cooperative relationship with Gibraltar in the event of EU exit.

The most significant changes to Gibraltar's post-Brexit operation as an international finance centre are likely to be in the sphere of tax, and while Gibraltar has always met its obligations in relation to the relevant EU rules and Directives, it has also been slightly uncomfortable with aspects of the EU's moves towards harmonisation of corporate taxes across member states.

Although it was formed as a free market alliance, since its inception fiscal matters have been at the root of the EU, but Gibraltar's 'special relationship' with Britain has allowed considerable latitude in relation to what taxes it imposes or those it doesn't. However, as is the case with other member states, Gibraltar has increasingly found in recent years its fiscal sovereignty eroded and its latitude on tax matters severely curtailed.

As in Britain, Gibraltar has benefitted from several EU Directives introduced to harmonise and support the freedom of establishment, particularly the Parent-Subsidiary Directive which prohibits withholding taxes on cross-border intra-group interest dividend and royalty payments made within the EU.

As a stepping stone for foreign direct investment, should Brexit come about EU subsidiaries could no longer rely on these Directives to allow tax-free dividend or interest payments to their holding companies based in Gibraltar. In the case of the UK, bilateral double tax treaties will no doubt mitigate the impact of the non-application of any tax related Directives. Gibraltar, however, is not currently a party to any bilateral double tax treaties. Accordingly, Gibraltar would either have to seek from the UK the extension of all or some of the UK’s bilateral tax treaties to Gibraltar (subject of course to the agreement by the relevant counterparties) or it would need to negotiate its own network of bilateral double tax treaties with a whole series of EU and non EU Member States. To say the least, neither of these options would be straightforward to implement at short notice and would need the wholehearted support of the British Government

Whilst Gibraltar’s economy is likely to be adversely affected should Brexit occur, there may be some potential benefits. An EU exit would result in fewer regulations and possibly may provide Gibraltar with greater exposure to emerging economies.

From a tax perspective, an EU exit would probably enable Gibraltar to introduce tax rules and incentives that are contrary to EU tax laws and would provide the Gibraltar Government more freedom to adopt competitive tax regimes that may be considered contrary to EU state aid rules. How possible or effective any such strategy would be is doubtful given the OECD driven anti-tax avoidance climate affecting all reputable jurisdictions whether within or outside the EU.

In this as well as other possible change much will hinge on any post-Brexit relationship with the UK - an issue which the Gibraltar Government addressed recently in a paper sent to Westminster's Foreign Affairs Committee. It stressed not only that 'EU membership has been an important factor in the development of Gibraltar’s economy' but also the importance of 'clarity as to the rights the British Government will protect and defend for Gibraltar in the context of its own negotiations.'