Online gambling tax odds-on to be a success but collecting the winnings may prove difficult
It looks like online betting may finally be hit with some kind of tax in 2014, as the Betting (Amendment) Bill 2013 continues to grind its way through the Dail with debates in recent weeks.
In the spring of 2009, then justice minister Dermot Ahern began a review of gambling legislation, some of which dates from 1931.
In his very first Finance Act as Finance Minister in 2011, Michael Noonan provided for a new licensing regime and an extension of the betting tax to online gambling. It just needed a signature, but that didn't happen.
Almost five years after the gambling review, a piece of legislation is finally going through which will tax online betting. Once enacted, all online bookmakers and betting exchanges, will be subject to a new licensing regime.
Anybody taking a bet online from somebody resident in Ireland, no matter what exotic part of the world the company is operating in, will have to be licensed in Ireland.
Unfortunately, the paltry rate of just 1pc will apply. This will be welcome news for big operators like Paddy Power, which generates three-quarters of its profits online and one-third of total group profit in Ireland. It has little to fear from the 1pc betting tax.
Around €1.6bn per year is gambled here online, which suggests the Exchequer could have bagged around €48m in the last three years of delays.
Technology and gambling now go hand in hand. They also create a very mobile form of capital and jobs.
If you want to know just how intricate tax arrangements for companies in this sector can be, then read the autobiography of former William Hill chairman John Brown. It is called, 'Lucky John: From teaboy to chairman of a multi-billion pound firm.'
Brown talks colourfully of how, in 1999, he set up a call centre operation in Athlone to take tax-free bets for UK residents.
British bookie Victor Chandler had moved its telephone betting operation to Gibraltar to provide UK residents with tax-free betting, instead of paying the British 9pc betting tax. Ladbroke did something similar.
Brown had a meeting with the British Treasury secretary and told her that if she didn't cut betting tax from 6.75pc to 3pc, "we would be forced to take our telephone and internet business off-shore."
If the government cut the tax it would lose revenue but create more jobs. If they didn't, they would lose revenue and jobs. The treasury secretary told him "the government didn't work like that."
Brown looked at Malta, Madeira, Liechtenstein and even Switzerland for his new off-shore operation, but none were suitable. One day he was booking travel insurance with British Airways by phone, and discovered the girl on the other end of the phone was in Kilkenny.
"I suddenly realised that when you rang a company, your call was often dealt with by a business call centre somewhere else, while the transaction was recorded in the UK."
Irish betting tax was cut by Charlie McCreevy to 5pc in 1999 "but I thought we could avoid that by passing the bets from the call centre to an offshore site."
Brown consulted an Irish barrister who told him as long as the person having the bet wasn't resident in Ireland and the bet wasn't paid for in Ireland, then there was no transaction in Ireland and no duty to be paid.
Brown wanted a call centre in Ireland but a computer registering the transaction in Gibraltar. The Gibraltar government didn't like the sound of it and "didn't want Gibraltar to be seen as just a UK tax avoidance location."
Brown decided to go with Antigua instead and locate a few computer servers there. He recounts how IDA Ireland told him they wouldn't give him any grants for a call centre and "meetings with our UK lawyers and accountants threw up one potential problem after another."
Irish customs said it looked okay, but referred it to the Revenue Commissioners "who eventually told us they weren't entirely happy with the proposal."
The former London barrow boy got on a plane to see finance minister Charlie McCreevy, but only after he had already signed a lease on "an industrial shed" in Athlone for 250 staff.
Describing how McCreevy "enjoyed his racing", Brown says: "He was down to earth, not your usual smooth politician, a country man, with a broad accent, so broad that I found it difficult to follow what he was saying at times."
The civil servant also present at the meeting made it clear he thought the proposal was unacceptable. Feeling the meeting was not going well, Brown told McCreevy if he didn't want William Hill in Ireland, they would go somewhere else. They were already fitting out the building in Athlone. According to Brown, McCreevy said, "of course we want you, we want the jobs." Unemployment at the time was actually just 4pc!
Describing it as one of William Hill's greatest achievements, Brown said they had "a call centre in Ireland, a bookmaking operation in Antiqua, accounts in the Isle of Man and odds-setting and risk management in Leeds – all linked together."
In 2007 the British government got rid of the 9pc betting tax and William Hill closed the centre, with the loss of 300 jobs.
Capturing the online revenue for tax will be difficult but not impossible. The row over where the extra betting tax revenue will be spent, will kick off shortly. Watch this space!