International E-Commerce and E-Gaming Developments
By Offshore-E-Com Editorial
01 May, 2012
While our previous feature provided some insight into the trends driving offshore e-commerce and e-gaming, and descriptions of the legislation in place in some of the industry's major jurisdictions, in this feature we round up some of the more interesting recent developments affecting the world of offshore e-commerce and e-gaming.
We begin in one of the most important jurisdictions in terms of e-gaming, but one which has been down on its luck in recent years: Antigua and Barbuda. Alongside territories like Costa Rica, the Isle of Man and Gibraltar, Antigua and Barbuda remains one of the premier domiciles for international e-gaming companies. However, it was dealt a severe blow in 2006 when the United States Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA), which shut out offshore operators from the US market by making it illegal for banks and credit card firms to make payments to such internet operations. It was estimated prior to 2006 that operators based in Antigua and Barbuda had 25% of the US e-gaming market. But the US legislation has deprived the tiny Caribbean jurisdiction of billions of dollars in revenue, and Washington has effectively sidestepped rulings in favour of Antigua and Barbuda by a World Trade Organization (WTO) panel.
In February this year, AntiguaÃ¢â¬â¢s government announced that further proceedings will be launched at the WTO against the US and its treatment of offshore operators. According to AntiguaÃ¢â¬â¢s government, although the WTO ruled more or less in favour of Antigua last year, and required the US to amend its legislation to permit Antiguan gaming operations to offer their services to US citizens on a level-playing field, the opposite has happened, with the US not only stubbornly refusing to do any such thing, but now passing legislation to criminalize banks or payment processors who assist in e-gaming across state or international borders. Ã¢â¬ÅIt is increasingly impossible to understand why the United States has not complied with this decision,Ã¢â¬Â the territory's Minister of Finance and the Economy, Harold Lovell said.
US Trade Representative Ron Kirk acknowledged in a meeting with Antiguan Prime Minister Baldwin Spencer in April 2012 that a solution to the case had been elusive, but he assured the PM that the US government remains Ã¢â¬ÅcommittedÃ¢â¬Â to finding one that is agreeable for both sides. The US is obliged to pay Antigua USD21m a year in compensation as a result of the lost trade opportunities (although this is far short of the USD3.4bn in damages Antigua originally sought for lost e-gaming revenue). Some Democrats are at least sympathetic to AntiguaÃ¢â¬â¢s cause, but proposals to repeal the UIGEA, or at least water it down, are unlikely to be a priority in an election year.
Another important legal e-gaming case involving alleged transgression of US gambling laws by an offshore-licenced firm also came to the fore recently, when Alderney played a central role in the controversy surrounding the companies trading as Full Tilt Poker, which were registered in the Channel Island. The Alderney Gambling Control Commission (AGCC) suspended the licences of Full Tilt Poker last year after a special investigation prompted by indictments unsealed by US Attorney GeneralÃ¢â¬â¢s Office in the Southern District of New York on April 15, 2011, accused 11 defendants of bank fraud, money laundering, and illegal gambling offenses. Grounds were found to indicate that these licensees and their business associates were operating contrary to Alderney legislation, and following a hearing, the AGCC eventually revoked the licences as of September 29, 2011.
The AGCC subsequently commissioned an independent review into the way in which it handled the Full Tilt case, and, while this concluded that there were lessons to be learned, the report by Peter Dean, the former Chairman of the British Gambling Commission, largely vindicated the Alderney regulator, stating that it had fulfilled its statutory obligations in relation to Full Tilt Poker and its actions were Ã¢â¬Ëappropriate, timely and fairÃ¢â¬â¢.
Although the Full Tilt case brought some unwelcome headlines for Alderney, the jurisdictionÃ¢â¬â¢s e-gaming sector nevertheless enjoyed strong growth in 2011, according to figures announced by the AGCC in December last year. Commenting on an 'excellent year' for the territory, the island's Director of e-commerce, Robin Le Prevost, said that performance during 2011 surpassed expectations.
However, while most offshore e-gaming domiciles are reporting growth in incorporations, there seems to be a growing trend among governments in many of the important onshore markets to ensure a Ã¢â¬Ëlevel playing fieldÃ¢â¬â¢ between domestic and offshore operators, and particularly between bricks and mortar bookies and their more fleet-footed online competitors, with regard to tax Ã¢â¬â and especially in Europe.
The UK government confirmed in March that it is progressing proposals that will tax wagers on a point-of-consumption basis, bringing offshore operators into the UK tax net. The change will mean that any wagers taken in the United Kingdom, whether supplied by an overseas operator or not, will be subject to UK gambling levies. Government projections anticipate that the decision will boost revenues by GBP55m (USD88m) in 2014-15, increasing to GBP270m by 2016-17.
Similarly, online bookmakers in Ireland will be subject to a transactions tax, bringing the country's internet gambling regime in line with that imposed on Ã¢â¬Ëhigh-streetÃ¢â¬â¢ shops. Reports last March suggested that the legislation will mean that all bookmakers will in future pay a licence to operate in Ireland, thus bringing offshore operations under the Irish tax regime for the first time.
Last October, the Remote Gambling Association (RGA) lodged a state aid complaint with the European Commission in protest against plans by the Greek government to usher in new gambling laws. The legislation, adopted by the Greek parliament last year, aims to regulate remote gambling in Greece Ã¢â¬â a development which the RGA welcomed. However, the RGA is unhappy that the new law will give land-based gambling services a considerable tax advantage over their online competitors. Ã¢â¬ÅWe are fully aware of the fiscal pressures on the Greek authorities at present, but they do not justify the imposition of anti-competitive tax provisions which benefit the existing monopoly gambling provider over private online operators soon to be licensed in Greece,Ã¢â¬Â commented Clive Hawkswood, Chief Executive of the RGA.
Despite these onshore headwinds, and with less money in government coffers than in previous years, investment in both physical infrastructure and regulatory and tax frameworks continues in a number of jurisdictions as they strive to capture more e-commerce and e-gaming business. Take Jersey for example, which is establishing a new agency, Digital Jersey, as a part of a public-private partnership aimed at promoting Jersey's digital industries Ã¢â¬â including e-gaming, e-commerce and Information and Communications Technology, on the back of Jersey's newly updated Intellectual Property legislation. As the government explained earlier this year, Digital Jersey aims to position the island as the jurisdiction of choice for companies looking to develop in the digital economy: Ã¢â¬ÅIt will define strategy, prioritise areas that create employment and work with government to aid understanding and promote legislative and other necessary changes.Ã¢â¬Â
Having announced in December last year new funding for an upgrade of the islandÃ¢â¬â¢s telecommunications infrastructure, the Jersey government appears determined to place e-commerce at the heart of its economic strategy alongside more traditional offshore industries like banking, company formation and wealth management. Under these plans, money will be invested in new fibre optic technology that will enable super-fast broadband to be rolled-out across the island. As Jersey's Treasury Minister, Phillip Ozouf explained: "Fibre optic technology provides a gateway to a global online marketplace which will enable Jersey businesses to compete effectivelyÃ¢â¬Â.
Meanwhile, the Isle of Man, which is already a leading offshore e-commerce and e-gaming jurisdictions, is considering changes to the structure of its telecommunications market to further hone its competitive advantage in the industry. Following the publication of consultation conclusions in October last year, the Manx government has indicated that it is willing to take forward a series of proposals that will modernize the way the jurisdictionÃ¢â¬â¢s telecoms market is regulated, and provide greater certainty to island businesses. According to Dr Carmel McLaughlin, Director of the Communications Commission, these measures will Ã¢â¬Åhelp underpin the Isle of ManÃ¢â¬â¢s existing position as a desirable destination for business innovation and technological innovationÃ¢â¬Â.
The Manx government has also expanded its e-gaming offering with the creation of a new Network Services Licence for business-to-business e-Gaming operators. Available under the existing Online Gambling Regulation Act 2001 (OGRA) and designed to recognize the business-to-business relationships that many gaming operators now have, the licence aims to provide Isle of Man-based gaming operations the opportunity to make their platform available to business customers around the world. This, says Garth Kimber, Head of e-Gaming Development at the Isle of Man government, gives us the ability to satisfy every model of gaming business in the Isle of Man from those selling their platform capabilities to other businesses to those with direct customersÃ¢â¬Â.
Aside from e-gaming, cloud computing looks to be another potential growth area for the more technologically-equipped jurisdictions, something which the government of Singapore has been quick to recognize. At a business forum held last October, the SingaporeÃ¢â¬â¢s Infocomm Development Authority confirmed that businesses will, through the inclusion of related costs under the Productivity and Innovation Credit (PIC) scheme, be able to obtain significant tax benefits for cloud computing. The PIC provides businesses with tax benefits for investing in a broad range of productivity improvement and innovation activities and businesses of all sizes located in Singapore will be able to claim for their cloud computing expenditure, within certain categories such as the acquisition or leasing of technological equipment and training expenditure.
To summarize, it remains to be seen how on-going attempts to Ã¢â¬Ëlevel the playing fieldÃ¢â¬â¢ between physical and online gambling and gaming operations, both in terms of tax and regulation, will affect the burgeoning offshore e-gaming industry. But those offshore jurisdictions which continue to modernize both their legislative structures and technological infrastructure look set to continue attracting e-commerce firms to their shores.
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