Brexit: How much will it hurt?

Brexit: How much will it hurt?

The article below was co-authored with Regulus Partners and appeared in their weekly publication The Winning Post on 19 February 2016. A link to the full publication can be found below:

Regulus Partners: The Winning Post

As the likelihood of an imminent UK referendum on EU membership increases, Gambling sector operators should be giving greater consideration to the consequences of a British vote to leave. Citigroup has been quoted this week as rating the probability of Brexit at around 25% (3/1), with its general market impact as: first, a 15-20% depreciation in sterling, and; second, a significant downside price risk for domestic-facing service industries in the FTSE 250.

Some political commentators are similarly gloomy about the destructive impact of Brexit on European politics. Significantly, things don’t get any better if we sharpen the focus on gambling sector business.

UK operators’ ability to access players resident elsewhere in the EU is most likely to be adversely affected, as some offshore jurisdictions already know. The ‘standard’ model for an EU jurisdiction setting up POC regulation has been to permit its licensees to locate their servers anywhere in the EU; so post-Brexit, UK-based operators will most probably be required to set up a platform within the EU if they are to remain compliant with (eg,) Italian, Spanish, Polish, or Romanian licence requirements.

Gibraltar-licensed operators are very likely to have similar problems, as Gibraltar’s presence within EU is derived from its UK parentage. So a Gibraltar licensee holding an Italian licence (for example) could, post-Brexit, face a conundrum on the location of its servers, which are currently required to be in Gibraltar by law but would then need to be duplicated in EU to maintain compliance with Italian law.

Conversely EU-based operators with a UK POC licence would be unaffected, as the UK licence does not restrict the location of equipment or specify the domicile of the licence-holding company. A one-way street then, favouring traffic coming into UK, with immediate adverse impact likely on UK and GBGA licensees with European business.

But what of the tax impact of Brexit? Post-Brexit UK POC tax is likely to remain in place. This is due to it falling within national legislation rather than under the legislative umbrella of the European Union. As such we would expect the UK tax position for operators facing the UK market to remain unchanged.

An interesting point however will arise over GBGA’s challenge to the place of consumption tax. At the time of writing both parties are in the process of agreeing the questions to be referred to the Court of Justice of the European Union. This takes time and it is not uncommon for cases to take more than a year to be heard. What if the UK was to exit before a hearing had taken place? Would the CJEU have any post-Brexit jurisdiction over the UK authorities? No doubt one for the lawyers.

Location of servers is one of the (existing) criteria to identify the location of a “permanent establishment” for tax purposes. So the additional EU-based servers required post-Brexit to meet most EU jurisdictions’ licensing requirements carry a veiled threat for the UK operator – the risk that they become “established” in that (EU) location for tax purposes. (continued on page 2.)

Companies, sectors and stakeholders mentioned in this issue:

Companies: Ladbrokes, Coral, William Hill, Sky Bet, Game Account Network, Borgata, MGM Resorts, RMG, BetVictor, Sky

Sectors: European remote gambling, UK bookmakers, UK racing, New Jersey Casinos, US remote betting, Canada betting

Stakeholders: EU, UK government, Senet Group, CMA, New Jersey Casino Control Commission, Canada Parliament Winning Post


Brexit would not necessarily mean the end of the UK VAT regime. Norway and Switzerland both sit outside the EU but operate VAT regimes which are based on the EU VAT rules and there is much to recommend convenient continuity. However, the UK VAT regime would no longer be governed by EU legislation and taxpayers would not need to adhere to judgments issued by the CJEU; though, it is highly unlikely that the legislation itself would be subject to a major overhaul. A question mark may however be raised over land-based Linneweber VAT reclaims currently in the courts.

The place of supply issues faced by operators in offshore locations such as Gibraltar and Alderney would remain unchanged. VAT would continue to be charged on services where received and operators would need to retain sufficient resources in those locations to avoid a VAT charge.

There are clearly many questions to answer from an indirect tax perspective. While initial thoughts suggest there may not be any immediate and direct duty consequences, there is a clear risk of additional representative and reporting requirements.

Despite these issues, would life outside the EU be easier? Criticism has often been directed towards Brussels in relation to the amount of bureaucratic red tape and statutory reporting generated by EU membership. However, things might not get better and could get worse from a gambling perspective.

While we would expect licences across EU jurisdictions to remain in place, Brexit could see UK operators required to appoint fiscal representatives and even perhaps deposit guarantees for the payment of gaming duties in Member States where they are licensed. This already happens to non-doms in UK. VAT registration arrangements and reporting processes would need to be considered carefully as they may no longer rely on the UK mini one-stop shop regime.

Brexit concerns for land based operators – most significantly London casinos – are likely to focus on impediments to the recruitment of employees (some operators have long benefited from the continental market for skilled dealers as well as filling wider staffing needs) as well as (potentially) high value customers. The implications for equipment provision (Vienna-based Novomatic is the largest supplier of electronic gaming machines to British casinos) are unclear.

This analysis is clearly speculative, however, without any intended bias it is also a little short of sector-specific upside prospects for Brexit. Given the risks, now is the time to plan.

This article was co-authored with tax-specialist Gavin West of Ampla:

If you would like to discuss any of the business implications raised here do get in touch.

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