Tax burden could push Paddy Power to go offshore
The chief executive of betting firm Paddy Power has warned that the company would examine the possibility of moving some operations to an offshore jurisdiction if its tax burden in Ireland continues to rise.
Patrick Kennedy made the comment yesterday as the company reported a 15pc decline in pre-tax profit to €67.2m during 2009. Betting turnover rose 31pc, and 36pc in constant currency terms, to €2.75bn.
The fall in profits came as the company's customers, primarily in Ireland and the UK, backed more winners at events such as horse racing in Cheltenham and the company offered what it said was better value to its clients.
Pre-tax profit in constant currency terms was 11pc lower, while diluted earnings per share were 12pc lower at 120.7c. Betting turnover at outlets in Ireland rose 1pc to €949m, but operating profit from the shops was 43pc lower at €16.3m. It has a 32pc retail market share here.
Speaking yesterday, Mr Kennedy said that the company expects to employ an additional 250 people at its headquarters in Tallaght, Dublin, within the next three years to bring its workforce there to 900. However, he said that while the company was aware of its responsibilities to employees, it must be equally cognisant of its duty to shareholders.
With the Department of Finance currently considering the imposition of a tax on internet and telephone betting transactions, Mr Kennedy said a 1pc tax on turnover from these sources would, at current levels, result in €2.5m being removed from Paddy Power's annual operating profit.
He added that in 2008, Paddy Power paid about €18m in taxes related to its online and telephone betting operations, via various charges such as corporation tax and VAT. Mr Kennedy said in Gibraltar -- a favourite location for online betting operations due to its low tax rate -- that tax burden would have effectively been halved. One of Paddy Power's competitors, William Hill, moved its online headquarters and operations to Gibraltar last year.
"This is a very competitive, cut-throat market. The gap between doing well and underperforming is very, very narrow. You can't take too many structural impediments to your cost base, and that could lead to the tipping point," he said.
However, he added that the company retains a "strong commitment" to Ireland.
Paddy Power's online gambling division, excluding its recently acquired Australian operations, recorded a 23pc rise in betting revenue to €856.4m last year, or a 31pc jump in constant currency terms. The unit's operating profit, also excluding Australia, rose by almost 7pc, or €2.9m, to €45.7m last year.
Paddy Power boosted its stake in Australian gambling firm Sportsbet last month to 61pc.
Shares in the group closed up 3.1pc in Dublin at €23.76 yesterday.