The legal side of the online casino industry is especially complicated because there are no international rules or agreements on how anything should be handled. Instead, different countries, states and provinces have their own ways of handling licensing and taxing revenues from the games. This can lead to some murky scenarios as we're starting to see with the new UK online casino tax that went live on December 1, 2014. While the law was made with good intentions, a number of likely unexpected side effects have really shaken up the industry.
The Nature of the Law Itself
The United Kingdom was facing a problem that a lot of places are up against: They were only able to effectively tax online casinos that were operated from inside of their borders. Changes were made in how their licenses and taxing guidelines work to focus on taxing where the actual play happens instead of taxed based on where the games were served from. This means that offshore companies are now required to pay taxes on earnings from UK players. It also means that they have to apply for a UK gambling license to continue to serve these individuals.
While this is the main point of the law, there are a few other things that it changed. The most important change is probably to the actual tax structure which has resulted in a larger percentage of gross gambling profits taken in taxes. This result in particular has led to a cascade of changes in the UK online casino scene and the online gambling world in general because so many companies are affected by the new tax structures. It has also led to a situation where there are incentives for companies to operate illegally inside of the UK.
New Incentive Structures
When tax rates are changed in such dramatic ways in any industry, it can drastically shift the incentive structures. A large number of companies have decided to simply pull out of the UK market. This includes several big brands that have sold their player bases over to other casino operators to try to get something out of the deal instead of just losing those players for nothing. This has obviously hurt these companies a lot because the UK is a really large market for online casinos right now.
Even companies that have elected to stay in the United Kingdom are hurting from this decision. The forecast for Ladbrokes' earnings for the year of 2015 were cut by one-third after the law was approved, and the stock values for both Ladbrokes and William Hill have dropped significantly. Shareholders are obviously not happy about this in the short term, but it could pan out in the long term if more players migrate to these sites as a result of the new regulations. The forecast for this is hard to determine, but it will definitely mitigate the effects on profits to some degree.
Potential Problems With Enforcement
One of the major problems that could come up with this change in tax law is with enforcement. Right now the United Kingdom doesn't have any ironclad methods for keeping unlicensed operators from offering their services to their players. While these could come in the future, the fact of the matter is that a shady operator could come in and offer better odds on games than the local competition because they would be paying lower tax rates. They have a financial incentive to do this because the new tax law for online casinos has put the companies that obey the law at a natural disadvantage.
Challenges to the Law
The players would also have a financial incentive to play at these unlicensed operators because of the better payouts and potential for better promotions. This is one of the primary arguments that was made by Gibraltar when they challenged the law. The efforts of the Gibraltar Betting and Gaming Association succeeded in getting the deployment of the new measures pushed back from October 1 to December 1, but they were unsuccessful in getting the law overturned. They have promised to come back with another appeal, but nothing has come of it as of yet.
What Comes Next
If we look at the problems that the United Kingdom is going to have with enforcing this law, then it's easy to see that some sort of enforcement mechanism is going to come next. Chances are that the government is going to look to expand control over Internet service providers in some way that will allow them to blacklist sites that offer unlicensed gambling options to their players. The argument here is that the unlicensed, offshore operators have no UK oversight which means that the players are not protected in the event of shady dealings.
While this is definitely the case, it's obviously not their only motive. The United Kingdom is going to take in a lot more in gambling revenues than before. Estimates are in the range of an extra £300 million each year that will be taken out of the industry for increased levels of taxation, and these moves are designed largely to protect those profits. The end result is likely to be that players have fewer options than before and worse odds in some types of betting.