B2B Operators face uncapped tax risks under UK POC regime
Previously we have written about the inherent uncertainties relating to the proposed UK interpretation of the difference between a software supplier and a remote operator: http://www.ramparts.eu/publications/new-uk-software-supplier-licences-delayed-2015-problems-b2bs
The UK Gambling Commission (UKGC) has recognised some of the difficulties that the new legislation creates with regard to B2B software suppliers and has agreed a delay to the introduction of licensing conditions affecting B2B software suppliers serving UK licensed operators. However, this approach does not solve the bigger issues as to whether a B2B operator is deemed to be a software supplier or a remote operator. That distinction determines a lot of additional considerations: including whether the operator must submit an advance/full application as an operator to ensure compliance for 01 October 2014 (the date is 16 September 2014 if you need to make an advance application as an existing operator lawfully supplying the UK market without a UK licence) or if it can wait for the software supplier regime in January 2015 (the current planned date).
The UKGC issued its proposed changes to the Licence Conditions and Codes of Practice in September 2013, the guidance stated that those B2Bs providing some aspect of networked activity, such as peer-to-peer poker and pooled jackpots must hold an operating licence, as well as a software licence, because in providing the networked activity the UKGC is of the opinion that the B2B company is providing “facilities” for gambling as defined in the UK Gambling Act.
A number of persons have confirmed to us that the UKGC are also advising B2B operators that installation of gambling software on a B2B’s own servers rather than that of the B2C operator also triggers a 'full' operating licence requirement. In our experience this will mean that most B2B operators will not fall within the software supplier definition. This is partly because the Gambling Act only loosely defines “gambling software” and the definition of “providing facilities” for gambling is ambiguous and has not been seriously reconsidered in light of the proposed switch to a point of consumption regime and partly because of the UKGC's interpretation and guidance to B2B operators.
In our view, the question of whether a B2B company requires an operator licence should not be dependent on whether the software is installed on the B2C's or the B2B's server but rather on whether the operator has direct obligations to the customer whether as a contracting party with the customer or as a person responsible for network activity for those customers (e.g. managing pooled funds between operators). Merely hosting games on your own server that you supply to a B2C operator should not be the determinative factor on this issue. In addition, such an approach means that any technical server provider company (including cloud based server providers such as Amazon or Google) could now fall within the definition of an 'operator'.
We have previously written to the Gambling Commission expressing our concerns on this issue and have not received a response. This issue is more pressing when you consider the tax risks for operators outlined below.
Liability to Duty
Under the new UK point of consumption regime, duty will apparently be payable as follows:
Finance Act 2014
"162 Liability to pay
(1)A gaming provider is liable for any remote gaming duty charged on the provider’s profits on remote gaming for an accounting period.
(2)If the gaming provider is a body corporate, the provider and the provider’s directors are jointly and severally liable for any remote gaming duty charged on the provider’s profits on remote gaming for an accounting period.
(3)Remote gaming duty which is charged on the gaming provider’s profits on remote gaming for an accounting period may be recovered from the holder of a remote operating licence for the business in the course of which the gaming took place as if the holder of the licence and the provider were jointly and severally liable to pay the duty."
A gaming provider is defined as follows:
"(1)A duty of excise, to be known as remote gaming duty, is charged on a chargeable person’s participation in remote gaming under arrangements (whether or not enforceable) between the chargeable person and another person (referred to in this Part as a “gaming provider”)."
HMRC have issued the following relevant guidance:
"If you supply remote gambling to UK customers from outside the UK you will become liable to a UK gambling tax for the first time and GBD, PBD and/ or RGD will become payable. UK based operators who supply remote gambling to customers who do not usually live in the UK will no longer be liable to GBD, PBD and/ or RGD on those transactions.
If you hold or are required to hold a Remote Operating Licence (ROL) from the Gambling Commission (GC) you must register for the appropriate tax/es and file returns online. " (New rules for some Gambling Duties from 01 December 2014)
HMRC have also published an Information Note No 1 that states:
" From 1 December 2014, RGD will no longer be payable on profits from the 'provision of facilities' for remote gaming. Instead, it will be payable on a UK person’s participation in remote gaming under arrangements with someone else, called for these purposes, ‘a gaming provider’. ...
Example: Company A offers online roulette to UK customers. The platform which Company A uses is provided by Company B and the software is provided by Company C. Both Company B and Company C are paid under profit share arrangements. A customer using Company A’s site contracts with Company A (as is clear from the site terms and conditions). On this basis, it is Company A which registers and pays RGD.
Although the remote gaming provider is liable to pay the RGD due on remote gaming profits, HMRC may recover any unpaid duty from the following person as if they were jointly and severally liable with the provider:
The holder of the Remote Operating Licence for the business..."
The above advice from HMRC is contradictory and confusing. In fact, it appears following review of the law and guidance that any UK licensed operator (whether B2C or B2B) must register for and pay duties - to take HMRC's example above both Company A and Company B will now be required to register for and be subject to liability to duty.
It appears that in a B2B environment the combined approach taken by the GC and HMRC mean that most B2B operators (because they provide network functions or even because they simply host their games on their own servers) need to:
- register as an 'operator' before 16 September 2014 (if already supplying the UK) or by 01 October 2014 once the new law is intended to come into effect;
- register for the payment and return of duty with HMRC before 01 December 2014;
- define all UK persons (this may require segregation of their existing databases and additional information from the B2C operators) and calculate the duty payable on any activity of UK persons (note this is a different test from the regulatory test of whether licensed activity is undertaken in the UK and therefore includes activity undertaken by a UK person outside of the UK)
- be liable for any failure to pay duty of any of their B2C operators (licensed or unlicensed) on activity of UK persons (and risk losing their operator licence for the same failure).
HMRC have recently advised that they will be issuing new guidance to help further clarify the above situation for B2B operators.