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Betfair Moves to Gibraltar

8 March 2011 by admin

gibraltarIt had been talked about for so long that people started to doubt whether it would actually happen. Kind of like the attempts at a new Wonder Woman movie or that last Guns N’ Roses album, people were always reporting insider information about when and how it was going to happen but it never did.* But now it has. Betfair, the world’s largest betting exchange, has moved its operations to Gibraltar.

By this time tomorrow, the company will be operating under a Gibraltar license. Like William Hill and Ladbrokes before them, this move is a financial one to save money on taxes. The UK has the highest taxes in Europe and Gibraltar offers a much more productive and business-friendly rate. Of course, this year that rate jumped tenfold, from 1% to 10% due to pressure from the European Union to be “competitive.” Still, even with a 10% tax rate, it’s much better than in the UK.

Right now Betfair is paying a 15% tax on gross profits to the UK government. Moving out of the UK also allows Betfair to avoid double taxation, at least for now. David Yu, CEO of Betfair, said that “when you look at how the UK does their taxation, it’s based on all revenues rather than where the customer is located. For example, if you’re paying tax to a local jurisdiction it doesn’t really work to have a case where you’re double taxed both in the UK as well as the other jurisdiction.”

Betfair-001The UK government has been taxing Betfair on revenue generated outside the UK. But those other jurisdictions, where the customer is located, are also taxing them for the same revenue. By moving out of the UK, they can avoid some of that double taxation. That doesn’t mean that the UK won’t get some of their money, though. In what is clearly a response to moves like this, the UK government is considering imposing licensing and regulatory fees on offshore gambling companies that access UK customers. If that happens, Betfair would have to pay for the privilege of continuing to offer their services to UK citizens.

By moving to Gibraltar and easing its tax burden, Betfair said it expects to save £20 million per year. This year there is not expected to be big gains, though, because there will be higher operational costs from running new and existing offices at the same time. In 2012, the company will consolidate its offices and then the real savings are projected to start. Investors are encouraged by news of the move, with shares in Betfair up 5%.

As more companies continue to move offshore to take advantage of friendlier tax environments, it will be interesting to see how the UK responds. One response would be to start charging offshore companies for licenses, which is being proposed. A better response, though, would be to lower the tax rates and take away the incentive for relocation.

*Okay, technically GNR’s Chinese Democracy was eventually released, but we’d all like to forget about that, right?

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