Betfair prepares for Malta move if betting exchange taxation changes - Sunday 16th of October 2005

Betfair, the internet betting exchange, is threatening to relocate to Malta if the Treasury moves to alter the tax regime covering gamblers winnings.

The internet betting exchange that has revolutionised the gambling industry by allowing punters to avoid placing their bets through a bookmaker will today secure a licence to operate on the island.

The west London-based group will consider relocating to Malta if, as expected, the Treasury moves to change the tax regime for betting exchanges once it completes a review of gambling taxation.

The outcome of the review, which will also cover tax paid by bookmakers and casinos, could be announced next month in the chancellors pre-Budget report.

It is expected that Betfair, which pays 15 per cent gross profits tax like bookmakers, will be moved to a tax paid on the winnings of its punters. But bookmakers are also bracing for tax changes.

They have enjoyed booming fortunes in recent years, partly thanks to the introduction of fixed odds betting terminals - arcade-style games that allow punters to bet on virtual casino games.

With the machines boosting profits across the industry, the Treasury is expected to introduce value added tax on them. This will hit bookmakers in the pocket. "Some of the smaller bookmakers have been hit by the popularity of betting exchanges," said Chris Sanger, head of tax policy at Ernst & Young.

"The FOBTs have helped them through difficult trading periods, so trying to raise tax on the machines could really cause them problems."

However, the Treasury is not expected to increase the rate of gross profits tax paid by bookmakers. "The Treasury will not want to see us go offshore," said one operator. "They have to strike the right balance between what is seen as fair and equitable and reasonable."

Four years ago, the government convinced operators such as Ladbrokes and William Hill to bring their internet and telephone betting businesses back to the UK when it replaced the betting duty paid by players and with gross profits tax.

Betfairs inclusion in the gross profits tax system has angered bookmakers, however. They say unlicensed bookmakers use Betfairs exchange to avoid paying tax and avoid regulation.

"Although betting exchanges pay tax on commissions [paid by punters] the bulk of profits are made by winners [on the exchanges]," said Mr Sanger. "The proposal to the Treasury [by bookmakers] has always been that exchanges should also pay tax for their customers."

But the Treasury will be keen not to lose Betfair. The company won the Queens Award for Enterprise thanks to its innovative use of technology and employs a growing number of people.

The Treasury said it had yet to decide how to tax the group. "We will not come out with a decision until we have all the information."

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