With less than a year until the United Kingdom leaves the European Union, Gavin West, Director at tax consultancy Ampla Consulting, considers what this could mean for the online gambling industry from a VAT and gaming tax perspective. Whilst the recent transition agreement could see certain Brexit-related indirect tax issues postponed until 1 January 2021 this is more likely to relate to goods rather than services. Gavin explains why Brexit could provide online gambling operators with an incentive to revisit their business structures to mitigate any potential risks which may arise following the UK’s exit from the EU.
What do we know so far?
As readers are no doubt aware, on 29 March 2017 the UK Government triggered Article 50, beginning the formal process for the UK to leave the EU on 29 March 2019. There remains much uncertainty as to what the landscape will look like from a VAT and Customs Union perspective post leaving. This is being addressed, albeit slowly. In late March 2018 EU leaders signed off a political agreement on a transition period allowing a 21 month period ending 31 December 2020, during which the UK will remain part of the single market and Customs Union. In addition, the UK Government has published the Taxation (Cross-border Trade) Bill 2017-19 which will allow it to establish a standalone customs regime and ensure that VAT and Excise legislation operates effectively once the UK leaves the EU.
No actions are currently required then…
It should be noted that the transition period agreement still needs to be ratified by the EU and UK Parliaments, which will not happen until October 2018 at the earliest. The Taxation Bill is high-level and whilst it paves the way for a UK VAT regime outside of the EU, further statutory instruments will be required to deal with associated indirect tax practicalities which businesses will face.
It is also important to note that the current focus of discussion relates to the importation of goods from other EU Member States, in particular the cash flow disadvantage which many small businesses may face as they are required to account for and pay import VAT at the time goods enter the UK but cannot recover this cost until the end of a VAT reporting period. Where UK-established online gambling operators currently acquire hardware or other goods from EU suppliers this may be an issue. However, based on the demographics of the industry and the physical location of operators’ platforms, this issue is likely to be of little relevance or significance.
Online gambling is a services industry. Whilst the VAT and Excise Duty position will affect the treatment of goods being supplied between the EU and the UK this should not extend to services. The place of supply of services for VAT purposes will not change following Brexit as the current rules already cover businesses located outside of the EU. For online gambling operators this will mean that B2C supplies continue to be taxed at the place of consumption, the jurisdiction where the customer is located.
The UK leaving the EU will also not affect current gaming taxes which are levied on a point of consumption basis. Gaming taxes are governed by national legislation. They are not subject to any EU Directives.
Taking the above into consideration then, what if any are the issues arising for the industry?
Possible issues around VAT reporting
Betting and gaming activities are in the main VAT exempt. However, this is not the case in all EU Member States. Readers are no doubt aware of the longstanding indirect tax issues in the larger markets such as Germany and Ireland where certain activities are subject to VAT instead of gaming taxes. Careful consideration also needs to be given to the VAT position where operators have customers located in other Member States including Finland, Greece, Croatia and Luxembourg.
It does not matter where an online gambling operator is established, the VAT place of supply rules for B2C electronically supplied services (such as betting and gaming), state that the services are supplied where the customer is located. This gives an online gambling operator a liability to register for and account for VAT in each of the affected EU Member States where it accepts bets, stakes or par fees depending on the game supplied. This applies on all income received; there is no minimum VAT registration threshold for the supply of electronic services across borders.
Currently there is a simplification measure known as the MOSS (the ‘Mini One Stop Shop’) which provides businesses within the EU with the ability to simplify their VAT reporting requirements for electronically supplied B2C services. The MOSS allows online gambling operators to avoid having to register for VAT in each and every Member State where they operate. The MOSS runs alongside the business’ EU VAT registration allowing the operator to report all activities on a Member State by Member State basis on a single quarterly return and to make a single payment of VAT for all supplies to the tax authorities in the Member State in which it is registered.
The business is already registered under the MOSS - so it can simply continue with this…
A potential issue could occur, post-Brexit, where an online gambling operator is currently registered for the MOSS in the UK. Although the MOSS scheme extends to operators located outside of the EU there are different rules and criteria. UK-registered operators will no longer be governed by the Union Scheme, instead they would move to the non-Union Scheme with effect from 30 March 2019. So what is the issue?
Affected online gambling operators would be required to register for VAT in a jurisdiction in which they have no establishment. If an operator does have an establishment in an EU Member State then any decision process is taken away from it and it would be required to register for VAT and the MOSS there. Where no establishment exists the operator would be able to choose in which Member State it wishes to register in. This however could also create issues as in certain countries non-established taxable persons may be required to use local agents.
Based on the above the best outcome for affected operators would be additional administrative requirements as opposed to the worst case scenario which could be an absolute cost to online gambling operators of engaging with a locally established agent. The alternative of registering for VAT in each Member State where customers are located would not appear to be a viable option.
Turning issues into opportunities
Brexit could provide online gambling operators with an incentive to undertake a review of their current and future indirect tax reporting requirements and liabilities to VAT and/or gaming taxes. The environment is fast moving and ever changing. Getting it wrong can create absolute tax costs and inefficiencies in reporting processes and procedures, resulting in additional resource requirements and unnecessary administrative burdens.
There may be online gambling operators who are unaware that they have a liability to VAT in certain Member States. Operators may not for example have a significant customer base in countries such as Croatia or Finland. However, although the VAT at stake may not be significant, other issues may arise. In addition to the potential for penalties and interest charges, the relevant Member State’s government may take any non-compliance of taxes into account when issuing licences and reviewing licence conditions and codes of practice for potential breaches. This may especially be the case in EU markets that are considering implementing regulation.
Are there any other points to consider?
It may be prudent for online gambling operators to consider the potential regulatory issues that Brexit could cause. For example, where a UK operator has been allowed a licence in another Member State by virtue of it being established in the EU, could this change? What happens upon applying to renew the licence? Could it be the case that going forward the operator is required to establish itself in that jurisdiction or partner with a local entity? Are agents required for the filing and paying of any gaming tax liabilities?
Depending on the answers to the above, online gambling operators may seek to ensure that they are established in an EU Member State post-Brexit. It is certainly a point worth considering. Taxation follows regulation and the prudent online gambling operator may want to combine a regulatory review of its operational structure when undertaking any analysis from a taxation perspective. Continuation of supply is critical in this industry and operators should at least ensure that they are aware of all potential issues that may arise as a result of Brexit.
Gavin West Director
Ampla Consulting, UK
Online Gambling Lawyer (Cecileparkmedia)