Place of Consumption Tax Guide

10th September13 min read

The introduction of the Place of Consumption (POC) tax is said to be the biggest shake up in the remote gambling industry since people started playing real money games on their computers and mobile devices. Even before the tax came into effect, we speculated whether the POC tax had already started to impact the mobile gambling markets in the UK. Well, now it’s absolutely clear that the answer is a resounding yes, but as always there are many sides to every story. In the unlikely event that you have never heard of this new tax before, this guide will set you right and explain how the new legislation is affecting you, the casino player.

Place of Consumption Tax

Historically speaking, remote gambling activity in the UK was largely untaxed. Although the taxation system was in place, it only applied to casinos that were registered, licensed and regulated in the United Kingdom. To avoid this, many casinos operated ‘offshore’, but still offered their services to UK players – all of this was absolutely legal. However, on the 1st of December, 2014, the industry was turned on its head as the POC tax came into effect. So what is the POC tax, how did it come into being and why did the government want to tax remote gambling?

What is POC tax?

In a nutshell, Place of Consumption Tax is a charge levied by the government of the United Kingdom, more specifically by the HM Revenue & Customs. Although we are referring to this charge as ‘place of consumption tax’ and most media outlets refer to it as the ‘point of consumption tax’, the formal name for it is Remote Gaming Duty (RGD). This duty came into effect on the 1st of December, 2014 and any gaming supplier (casino) that provides remote gaming services to a UK person is responsible for paying 15% of their profits to the government. The gaming providers must be registered to pay the tax, submit tax returns and pay any tax due in pound sterling every quarter. There are various effects that POC tax has on both the casinos and the players, and they are explained in more detail further along in the guide.

"Q: Would it be safe to assume that a casino which is liable for RGD also is licensed and regulated in the UK?

A: Yes. The Gambling (Licensing and Advertising) Act that came into force on the 1st of November, 2014 – just a month before the RGD became mandatory – ensures that all remote gambling operators have to be licensed by the UK Gambling Commission. Offering remote gambling services to UK residents whilst unlicensed is now an offence. Supposedly, this ensures that the casinos are regulated consistently and that it is easier for consumers to understand their rights. Mandatory licencing for all casinos operating in the UK, as opposed to just 15% licenced by the UK Gambling Commission before this Act came into effect, also provides greater transparency and levels the playing-ground in the industry, so to say. 

How does it work?

There are a few pressure points relating to the POC tax that are somewhat confusing, so let’s take a closer look. First, the tax is paid from the profits generated by UK players only and it doesn’t matter where in the world the operator is located. The HM Revenue & Customs define a ‘UK person’ as someone, who usually resides in the United Kingdom, and instructs the operators to have a robust system to be able to verify the addresses that are provided by players. This means that customers will no longer just need to state their address and the casino will simply accept it as such. Some sort of tools will have to be implemented to verify whether the player can be classed as a ‘UK person’ and to establish whether the profit that the casino makes from them will be taxed or not. As you can see, there is no talk of citizenship or legal resident status – all that matters in this case is that the person primarily lives in the UK. Second, the law establishes what remote gambling is. Any game played over the internet, via telephone, TV, radio or any other telecommunications means will count as providing remote gambling services.

This broad definition is sure to include the ever-expanding number of ways that people can gamble remotely, even on the newest wearable technology devices that are being developed, for example smartwatches. Third, it is worth reiterating that the tax has been set at 15%, which is comparable to other markets that have chosen to tax remote gambling. The 15% tax will be calculated from the gross profits of the operator – gross profits meaning the money that is received from bets, minus the winnings. Last, under the new law, gambling is defined as playing games of chance for a prize, be it monetary or tangible.

Why was it deemed necessary to introduce this tax?

Before POC tax, the remote gambling taxation system in the UK was based on a ‘point of supply’ basis, which meant that taxes couldn’t be levied on casinos and other gambling establishments located outside of the UK. This is precisely why most of your favourite casinos were licenced in more favourable countries, such as Malta or Gibraltar. The companies paid the substantially smaller taxes ‘offshore’ where they were licenced, but were still legally allowed to provide remote gambling services to UK players.

The government, of course, thought this system is unfair not only to brick-and-mortar casinos, which have had to pay tax for a long while now, but also to themselves because they were missing out on potential revenue – they could stand to raise £300 million a year. So, to establish a ‘fairer tax system’ and to ensure that remote gambling makes a ‘fair contribution to UK tax receipts’, the government introduced the POC tax. The tax also levelled the playing field in the gambling industry – not only for online and offline casinos, but also for casinos licenced in the UK and abroad. This means that now, casinos that provide services to UK residents but are licenced abroad will have no financial advantage over a casino that is licenced in the UK. This is supposedly also more in line with the taxation and licencing of the remote gambling industry in other EU member states, which was yet another reason for the government to even propose the POC tax in the first place.

The Aftermath of POC Tax Introduction

Defining POC tax, looking into how it works and discovering why it was deemed necessary is only scraping the surface of this topic. The newly introduced tax, going from taxing remote gambling at a negligible rate (near zero percent) to 15% was bound to have a profound effect not only on the industry itself, but also on other remote gambling markets. In this section, we look into whether the 1st of December, 2014, was really the doomsday that it was predicted to be.

Panic is all around…

Various European countries have taken different approaches to regulating, licencing and taxing remote gambling, but the POC tax introduced in the UK last year must have been one of the more drastic shake-ups. It has sent panic-stricken shock waves throughout the entire world, perhaps as a foreshadowing of what’s to come as other countries also come to realise that they could benefit from this vastly expanding remote gambling mania. For now, it’s the operators which service British customers that have already withdrawn from the market or are shaking in their boots, anticipating the first tax returns that are due very soon. But just how bad is it? Well, perhaps it is best illustrated with an example. Although this doesn’t directly impact us, the players, imagine a mobile slot that you love playing has a RTP (return to player) of 96%. The four percent profit that the casino makes on that particular slot is then taxed at 15%, which, on the surface, doesn’t sound very drastic at all. For the sake of the argument, let’s just assume this particular slot generates an annual gross profit of £100,000. HM Revenue & Customs would now like a slice of that, worth £15,000. Thank you very much. For a casino that has never paid tax on its services thus far, this might be a considerable chunk out of their marketing or their services budget. Yet for another giant casino, which has paid tax in the UK before and has large profit margins, this 15% might not be a big deal at all, although they will make a fuss about it anyway. After all, who likes more tax?

Consolidation – it’s already happening

The introduction of POC tax has triggered all kinds of movement in the long-established competitiveness of gambling brands. And in this transitional period – immediately after the introduction of the tax – is essential to operators, as they are forced to adapt to the new rules and try to maintain their competitive edge.  For example, large companies are trying to minimise their losses and small operators are trying to keep their heads above water as their already small profit margins are hit by an extra tax.

However, it is inevitable that the POC tax will result (and already has to some extent) in market consolidation. As casinos will have less money overall and less money to engage in active advertising and marketing of their services, it may undermine their ability to compete in the market. This will quickly bring about mergers and buy-outs of the smaller casinos. For example, last September – so, even before the tax took effect – 32Red announced its acquisition of GoWild, and very recently William Hill tried to purchase 888 Holdings (the offer was rejected). These shifts that we are seeing in the remote gambling industry are serious, but probably not as serious as closures and withdrawals from the UK market. Jack Gold, Fortune Lounge and Betsson are but a few casinos that decided against continuing business in the UK and ceased all trading before POC tax came into effect. This multi-angled consolidation of the remote gambling market means that there will be fewer casinos to play at, so that’s bad news if you are more into playing at smaller, boutique casinos with very personal approaches. The largest of the large brands, such as William Hill, are here to stay for the long haul, however. That is because they are so deep-seated in the United Kingdom, that even with the POC tax that they are now legally obligated to pay, it wouldn’t make sense for them to withdraw from the market. In fact, the huge operators may even find the POC tax advantageous, as it lessens the competition in the industry and allows them to spend a bit less money on advertising.  In summary, the impact of POC tax on the competitiveness of casino operators in the market will be strong and it will likely undermine the advertising activity of many of the smaller casinos and, ultimately, their ability to even stay afloat.

Avoiding POC tax

Another scenario for the casinos which will start to struggle with that 15% chunk of their profits taken away is goingunderground’ and starting to offer their services to UK players without being licenced or regulated in Britain. This potentially expanding black market was certainly one of the biggest concerns that was brought up in industry representations when the law was still in its consultation stage. They reasoned that casinos which wouldn’t have the 15% tax burden could potentially offer better odds and promotions to its customers, thus sustaining a large player base. Although the government representatives refuted the argument, saying that other countries such as Spain and France have successfully implemented similar tax regimes, they have failed to realise that the black online gambling market is flourishing in those exact countries. Only time will tell how the casino operators are affected by the recent changes and whether the black market starts expanding.

What POC tax means to other countries

You might think that the introduction of this POC tax would only affect the remote gambling operators which are directly linked with the UK. However, it will inevitably affect operators which have hardly anything to do with the UK at all. Up until the 1st of December, 2014, a lot of casinos were operated and licenced in ‘offshore’ jurisdictions, such as Alderney, Curacao or Malta, because those jurisdictions offer more lenient tax regimes. However, these countries could now be worse off, because if a casino does decide to continue providing services to the UK and pay the POC tax, it would have to be licenced and regulated in the UK.

In that case, it might make more sense to relocate their entire business to the United Kingdom. This would cut unnecessary operating costs, such as running multiple offices and employing more staff than would normally be necessary, and boost profit margins. And if you thought all of this was pure speculation and wasn’t serious, the Gibraltar Betting and Gaming Association (GBGA) found that the threat to their gambling business is particularly big, so they launched a lawsuit against this newly imposed tax.

Challenging the law

A lot of offshore casinos operate from within Gibraltar, including 32Red and Victor Chandler – two huge casinos. Now, with the POC tax, there would be hardly any incentive for casinos to register their business and pay any tax in Gibraltar. Thus, the GBGA took the next step and sued the Government in mid-2014 (before the POC tax even came into effect), raising many good points. First, the GBGA argue, that the tax breaches an EU law since it restricts the free movement of services as it prohibits casinos from offering services to UK customers, but from foreign countries. Second, they claim that the tax discriminates against other remote gambling operators based on where they are located and have favourable conditions for UK-based casinos. Some operators, for example a Swedish based casino, will thus have to pay their local taxes, as well as British taxes if they choose to provide their services in the UK. Third, the GBGA predict that the new tax regime would push some casinos into the ‘black market’ and many others would operate without a licence due to lower operating costs, with horrible consequences for consumer safety and protection.

Although this legal challenge had failed and the POC tax was nonetheless introduced, the GBGA has recently applied for a judicial review, with undying hopes of overturning the tax. We will certainly keep you updated when the results of this judicial review come through, but for now, the POC tax is here to stay.

How the POC Tax Affects You

The daunting question that many remote gambling aficionados have asked themselves after finding out about POC tax was: should I worry? Well, we hope you weren’t and still aren’t overly worried. Whereas it could potentially bring negative changes, it will also have a positive impact on the industry as a whole.

It could mean bad news

First and foremost, no – your income from online and mobile gambling isn’t taxed. Phew, at least we got the most pressing issue out of the way. Although the POC tax doesn’t directly affect you as it’s a corporate-only tax, don’t relax just yet. As a result of casino closures, mergers and all of the other shaking and moving in the industry, chances are that this POC tax will change the way you play. The most realistic of all changes is casinos leaving the UK market. They will either discontinue providing their services to players registered in the UK, yet still continue to operate abroad, or shut down their doors altogether if the vast majority of their profits comes from the UK. Other, smaller casinos will be absorbed by mega-operators with years of brick-and-mortar and online experience. Of course, smaller competitors being bought out by larger ones is commonplace in many markets – that’s just the way economics works. However, the POC tax has definitely sped up the shift towards conglomeration, which is bad news for UK players. 

With fewer casinos to choose from, the remaining casinos are free to dictate the way remote gambling works, namely by reducing player benefits. For example, if they decide to no longer have welcome cash bonuses, you probably won’t find welcome cash bonuses elsewhere either. It would all be about cutting corners. Furthermore, the casinos that choose to bite the bullet and continue operating in the UK could offer another curve ball – increasing costs to its UK customer base to ensure that their own loss of profit is minimal. This could mean that your deposits and/or withdrawals would now incur a fee, however unlikely it may sound. It is wholly up to the imagination of the casino managers as to how they choose to cut costs, but one thing is for sure – the POC tax is bound to have some negative repercussions on the UK players, despite never being intended to do so. Only time will tell.

"Q: If a casino that I always play in and have funds in the account decides to shut its 'doors', how will I know'?

A: The casinos are obliged to inform their customers of any plans of closure and/or relocation. For example, some casinos will refer and relocate their players to their sister casinos, like Betsson recently moved all of its players to Betsafe, their partner casino.

"Q: Will my account stats and funds transfer through to the partner casino?'?"

A: Although your experience points, VIP points and other account stats probably won’t transfer through, you can rest assured no money will be lost. The casino’s management should let you know about their closure far in advance to allow for you to withdraw any remaining funds back into your bank account.

But it could also be great!

Of course, it could also go the more positive way, because the remaining casinos will want to stay on top of their competition. The casino brands that truly understand the market and the traffic they are receiving, will offer not less, but even more incentives to keep you playing at their casino and not switch to any other one. This will make sense, because consumer loyalty will become one of the biggest focus areas for casinos, who couldn’t afford to lose the revenue they receive from you. Perhaps the free £500 welcome bonuses will become much less common, as that fills a site with bonus rather than actual money, and the VIP benefits will be cut, but that doesn’t mean players can’t be incentivised in other ways. After all, the remaining brands will want to secure their place in the very top of the nation’s favourite remote gambling companies. We predict that there will be a shift to more ‘experiential’ bonuses and promotions, for example offering free spins or free bingo tickets to get the players involved with the casino, thus building brand loyalty. The ways that the remote gambling providers market themselves and try to maintain their customer base will become increasingly innovative, as forced by the POC tax, but that is great news for all the players. The industry could definitely use a little updating here and there, and by seeking to have the maximum impact with as little money as they can possibly spend, the overall gambling experience will become more pleasurable and exciting.

Conclusion

Hopefully, this guide has set some things straight about the newly introduced Place of Consumption Tax. It is rather straightforward – a way for the UK government to raise additional revenue to fill its coffers, a way to ‘level’ and make the gambling market more fair as well as increasing the protection that the remote gambling consumers get from licencing and regulation. This tax comes as little surprise, as all over the EU, markets are becoming increasingly regulated and taxed. Inevitably, there was reluctance to accept the POC tax in the industry as the HM Revenue & Customers were trying to dip their hand into their profits, but the POC tax also has a variety of other – both positive and negative – repercussions on the industry as a whole and on the players. All in all, only time will tell whether the POC tax will achieve the goals that the government set out to achieve or whether it will cause irreparable damage to the remote gambling industry, which is one of the global leaders, for the years to come.

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