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Gambling Bill in the UK – an international issue

Sponsored post: Hon. Albert Isola MP The Minister for Financial Services and Gaming in Gibraltar writes that he wants a fair deal for all countries.

Gambling policy is a difficult and troublesome area of every Government’s agenda. Over the last 10 years the UK , EU Countries and the United States have wrestled with some or all aspects of gambling policy, not least with remote or ‘online’ gambling.

By contrast, Gibraltar has had a settled and successful regime for many years. It is anchored very firmly in “hands on”, direct regulation to ensure that its consumers are protected, wherever they are in the world, in this global, online market place. To be effective in protecting the consumer the licensing and regulatory regime must be capable of keeping crime out of online gambling, and of protecting consumers in such things as integrity and transparency of the gaming process, security of stakes and winnings, protection of the young and the vulnerable.

This requires that licensees have their important management and operational functions in Gibraltar so that they are accessible to the regulator. So, “Brass plate” operations (as will be permitted by the proposed new UK regime) where operators are licensed in a country but do not have their main operations there are not permitted in Gibraltar, and we also maintain a high standard entry level to ensure that we host only reputable and reliable operators and websites.

The UK is itself now grappling with a new licensing, regulation and taxation regime. The outcome of that is as important to Gibraltar’s economy, and to the commercial survival of leading British companies in this sector as it is to continued protection of UK consumers. In Gibraltar we understand the UK Government’s desire to raise tax from this activity, especially in these economically difficult times. But equally, we think that it is important that the UK gets it right, not just so that Gibraltar is not gravely damaged at a time that we are once again under “economic siege” from Spain, but to ensure that the current high levels of protection that UK consumers enjoy is not eroded. We think that both things can be achieved.

How can “getting it wrong” harm both British companies and British consumers? Well, the online gaming industry is by definition as global as the internet itself. British consumers can switch to foreign websites at the click of a mouse. So, if British operators are saddled with excessively high taxes they are rendered uncompetitive with other foreign websites. They cannot offer their customers the same odds or chances of winning in casino games as foreign websites operating in unregulated, untaxed countries. Experience in other European countries has shown that this leads to a “lose, lose, lose” scenario: British consumers will switch to foreign websites in search of better prices, where they have no consumer protection; important and world leading British companies will go out of business in this market; and, HMRC will not collect as much tax as it could.

Gibraltar and its regulators and operators are world leaders in this relatively new sector, where rapidly changing technology means ever and fast changing business models and regulatory and consumer protection threats and challenges. We and our market leading operators want to work closely with the UK to ensure that the new UK regime works well and fairly for all: that it does not undermine Gibraltar: that it raises tax for the Exchequer, and that it preserves rather than undermine UK consumer protection; that it does not lead to UK consumers being penalised on pricing and quality of offering.

There is much to be learned from the past unhappy experience of European countries that have rushed into this complex commercial, legal, technological and consumer protection minefield, if adverse, unintended consequences are to be avoided. Having initially banned (and now permitted) online gaming the USA stands poised to wrestle commercial leadership of this industry, where British companies currently lead, as a result of Europe getting its policy wrong. We in Britain and British Gibraltar can still get it very right.

We think that it is possible to achieve all of these things, and I am delighted that the UK Departments will shortly be meeting with our operators through their association to ensure that the UK regime benefits as much as possible from our knowledge and experience in relation to the issues that I have mentioned.

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.'