Will Article 50 Change Online Gambling?

UK prime minster Theresa May’s triggering of article 50 on 29 March 2017 initiated the country’s administrative withdrawal from the EU. This is an act that will impact a plethora of domestic companies and trading partners that do business in the UK.

Obviously, there will be an impact for every industry present in the country, but the focus here is restricted to online gambling. Basically, what CasinoJuggler.com wants to figure out is how will article 50 affect online casinos?

At the time of triggering article 50, nothing in the UK changed from administrative or taxation perspectives. Fundamentally, the UK was still part of the EU and the various gambling-related companies operating within the country could continue to function without change.

Potential Brexit Outcomes

However, there will be changes ahead in how the UK continues to operate. Over the coming months, the UK is in the process of figuring out the most effective strategy for moving forward. Simultaneously, negotiations are also on-going with the EU, but Theresa May has promised that the UK will be leaving the EU even without a deal.

Before the UK even voted to reject the EU, the leave campaigners made all sorts of promises of securing trade deals with mainland Europe. These ranged anywhere from securing unrestricted access to the single market to arranging cost-friendly tariffs. For the sake of simplicity, here are the three main strategies:

• Unrestricted single market access: Switzerland has unrestricted access by allowing the freedom of movement of people with the EU. However, this is fundamental to the UK’s rationale for leaving, so don’t expect single market access to happen.
• Trade agreement: This would be a scenario where the UK agrees a complex trade agreement covering a variety of industries. Tariffs would vary from industry to industry, so there is no telling what would be leveraged against online gambling.
• World Trade Organisation tariffs: The WTO maintains complex array of tariffs that form the absolute maximum charges that can be leveraged on the exporting of goods and service. This is the worst-case scenario and it would see UK and EU gambling companies being charged a premium for doing business.

Discussion of the possible outcomes is an integral step in trying to figure out how the UK online gambling industry might be impacted. For years, the UK enjoyed as a position as one of the most profitable online gambling markets in the world, and with minimal restrictions.

How Taxation Plays a Role

Being in the EU gave major UK gambling operators the freedom to relocate their head offices to cheaper locations. These typically included the gambling jurisdiction where they held their remote gaming licences. At a glance, these included small geographic areas like Alderney, Gibraltar, Malta, and the Isle of Man.

By making this step, online gambling operators were able to legally sidestep national duties and increase their profits. Eventually, this led to the UK passing legislation that required all operators serving British residents to pay a 15% point of consumption tax (POCT).

POCT was introduced in December 2014 and required for all British-serving operators to obtain a UK Gambling Commission license and to pay a 15% tax. This ate into the costs of operators, who were forced to adjust their organisations or else leave the market entirely.

Once the UK leaves the EU, there will be new tariff costs on top of POCT. Theoretically, everything will remain the same for companies that operate solely in the UK and only serve British residents.

But that is not a realistic expectation for the vast majority of companies, as the UK online gambling industry is dependent on partnerships with operators, software providers, payment companies, management organisations, and licensing jurisdictions.

Possible Outcomes

Considering the wide spread of implications, it is worth broadly highlighting the possible outcomes:

• Collaboration takes a hit: The cost of doing business could result in fewer collaborations between software providers and operators.
• Leaving the UK: POCT forced many companies out of the UK, but more could follow the leavers rather than paying expensive tariffs for doing business there.
• Offshore operators return: Major UK gambling operators could return home from offshore destinations to avoid added taxes and costs from not being in the EU.
• UK market declines: There is no way that the UK gambling industry can remain as profitable if there are greater costs attached to working with top software providers. The UK could become more of a niche market due to inaccessibility.
• Licensing changes: UK operators could switch from EU licensing jurisdictions to places that will not have large tariffs.
• Online bingo remains successful: The UK is a wildly popular place for online bingo sites. Many of the best operators are based in the country and there are domestic software providers to utilise.

Please bear in mind that this was an early discussion on how online gambling will be impacted by article 50. Things are likely to change further, so make sure to check back for new Brexit online gambling discussions.