With the recent ruling of the European Court, it appears that the self-governing territory of Gibraltar will continue to be a low-tax haven for online gambling companies. In that ruling, the European Court decided to uphold the 1969 Constitution, which provides Gibraltar the autonomy to control its own taxation.

According to a report by Accountancy Age, Gibraltar is an attractive location for online gambling companies, which are all dotcom businesses, to establish their headquarters because of Gibraltar’s low-tax jurisdiction. The lower-tax jurisdiction gives the online gambling sector a significant edge over other sectors because the online gambling businesses don’t have to pay the hefty 30 percent corporate tax required in the UK. As a result, shareholders in online gambling companies accumulate a significant savings.

A threat to this low-tax haven began brewing, however, when the European Union started complaining that Gibraltar’s tax rules were unfair. In April 2004, the European Commission argued that that companies headquartered in Gibraltar had an unfair advantage over other companies because of the territory’s tax rules, so the European Union set out to abolish Gibraltar’s exempt company tax regime.

In addition to claiming that Gibraltar’s tax rules fostered ‘regional selectivity’, the Commission also argued that Gibraltar’s practice of basing taxes on payroll and occupation of business premises meant that dotcom businesses would be unlikely to pay any tax liability.

The Commission further argued that the Gibraltar must abolish its company tax regime by 2010 and implement a replacement tax regime instead. If such a plan were instituted, online gambling companies would likely be subjected to the same 30 percent corporate tax that UK-based companies are already paying.

The recent European Court ruling, however, has put the Gibraltar-based online gambling companies at ease because it upholds the territory’s 1969 constitution, which provides Gibraltar with fiscal autonomy. Gibraltar’s attractive tax regime, therefore, remains in place.

Martin Weigold, the finance director of online gambling company Party Gaming, said the European Court ruling removed the threat of having to pay the full UK tax rate of 30 percent.

‘It’s effectively removed one of the risks associated with the replacement tax regime that will come into effect at the end of 2010. We expect a low-cost tax regime that’s non-discriminatory to take its place when the tax-exempt scheme is phased out,’ Weigold said.

Posted on: September 29, 2006

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