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Taxing times?

Imagine you had been paying a mortgage for ten years, and then one day your mortgage lender said to you that you could have an 18-month payment holiday. At the end of the payment holiday, you would have to continue to pay your mortgage at the same rate that you always had.

It’s pretty obvious what your reaction would be, but what would be that of your bank manager?

Do you think he would say, “this is great: you will have more money for the next 18 months, and then when your payment window is over, you will be no worse off than you are today, on a month-by-month basis”; or do you think he would throw up his hands in horror and say, “Christ! In 18 months from now, you will have to pay a mortgage every month! What bad news this is for you!”

It’s pretty obvious which, no?

So can someone explain to me how it is that the news that the government is likely to impose some form of taxation on bookmakers based offshore should be greeted by the City as being “more bad news” for Betfair?

Until March this year, Betfair was onshore, and paying tax. It went offshore in the full knowledge that the law was likely to change at some point in the fairly near future. It calculated that a window of not paying the 15% tax would last, in all probability, until 2013. Whenever the window closed, the company would begin once more to pay in the same way that it always did. So why the news that it got its calculations right should result in its share price falling is anyone’s guess.

The (albeit slightly smaller) drop for Ladbrokes and William Hill is equally baffling. Sure, there is a chance that they will find their offshore businesses taxed at the same rate as their onshore business, but the potential positives of this announcement for both seem to me to be exciting. For a start, the imposition of an offshore tax must surely be more likely to hit the marketing budgets of those companies based entirely offshore, which ought to make it easier for those with a foot in each camp (indeed, much more onshore than off) to compete; and who is to say that the creation of a tax which allows the vast majority of the market to be captured will not also become an opportunity to lower the onshore (or blanket) rate? Retail outlets in the UK currently pay more in tax than they make in profits. If ever there was a chance for the government to address that, this review is likely to be it.






Posted in Betfair, Betting industry, Regulation.

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2 Responses

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  1. PPBox says

    It’s even better than that though, isn’t it? Betfair moved all Exchange customer business offshore in March, but even if legislation is passed it’s only the UK customers who are brought back. The exchange’s biggest “customer” is Betfair Malta, with whom all non-UK customers bet. That won’t be coming back onshore. In summary there’s a chance Betfair will be paying less tax than it was last year, and even then only starting in 2013.
    Say this quietly, but it’s almost as though the analysts who cover the stock don’t actually understand the business.

  2. fawwon says

    Whilst this is all very interesting I am slightly confused as to why you haven’t addressed the integrity of Betfair’s in running on horseracing markets. This is an open sore with constant customer dissatisfaction being balanced by a trade press cover up.

    If you were that concerned about the inclusion of the “zero” on roulette you must be having sleepless nights concerning in running betting!!!

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