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When it comes to regulation, online gaming companies haven't had much to smile about recently.
In the US, the world's largest and most lucrative online gaming market, the industry has suddenly found itself under intense regulatory scrutiny. Senior sector figures such as Sportingbet's chairman Peter Dick and BetonSports chief executive David Carruthers have been arrested in the US as authorities crack down on internet gambling.
The taxation of online gaming companies, most of which are based in the off-shore tax haven of Gibraltar, may seem a world away from the arrests of Dick and Carruthers, but until recently this issue would not have been too far behind the US clampdown on the industry’s list of concerns.
As online gaming companies are all dotcom businesses, it has been easy for them to establish headquarters in the low tax jurisdiction of Gibraltar. This has provided the companies with a significant edge on other sectors because they have not had to pay the UK corporation tax rate of 30%, creating massive savings for shareholders.
But these significant tax benefits have been under threat from the European Union, which has been working to abolish Gibraltar’s exempt company tax regime.
In April 2004 the European Commission said that tax rules in Gibraltar provided companies domiciled there with an unfair advantage.
The EC said this amounted to 'regional selectivity', and also took issue with the fact that taxes in Gibraltar were based on payroll and the occupation of business premises, which meant that businesses would be unlikely to pay any tax liability.
The commission said that by 2010 Gibraltar would have to abolish its exempt company tax regime and implement a replacement tax regime instead. This raised the possibility that online gaming groups based in Gibraltar could find themselves paying corporation tax of 30%.
A recent European Court ruling, however, has eased these fears. Gibraltar's 1969 constitution provides the territory with fiscal autonomy and the region should be able to continue providing companies with an attractive tax regime.
In an interview with cantos.com PartyGaming’s group finance director Martin Weigold said the ruling had removed the risk that PartyGaming and other companies based in Gibraltar would have to pay the full UK tax rate of 30%.
‘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.
COMPANY REPORTS
L&G payout for Palmer
An increase in operating pre-tax profit from £762m in 2004 to £1.92bn in 2005 saw Andrew Palmer, the finance director of Legal & General, pocket a pay deal that increased from £665,000 to £760,000. Palmer picked up a salary of £400,000, £20,000 in benefits and expenses of £14,000. He was also awarded a cash bonus of £204,000 and a deferred bonus of £122,000.
Up in smoke
Imperial Tobacco is expecting to meet earnings expectations when it releases its final year results for the year ended 30 September 2006, despite an adverse tax environment.
Imperial is one of the main tobacco makers affected by increases in the taxation of a product line called ‘singles’ in Germany. The group said it had traded particularly strongly in the UK market, where cigarette volumes were strong.
In the fast lane
Recently appointed finance director of Highway Insurance Arthur Milton has bought 90,000 shares in the car insurance underwriter at a price of 67p per share. The purchase cost Milton £60,000.
Milton replaced Ian Patrick during what has been a volatile period for the company, which also lost chairman Ross Dunlop.
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