Gibraltar decision a relief for online gaming firms

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

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 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.


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

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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