Taxman takes a punt, and wins

Online betting in Spain is now fully legal after the Tax Agency won a battle against operators over back taxes.

Online betting firms such as Bwin, Betfair and Pokerstars had been in something of a legal vacuum in Spain until the new Gaming Law approved in May of last year obliged them to obtain a license in order to be able to operate. And in order to obtain a license they had to start paying taxes at a rate of 25 percent of net revenues, the difference on what they take in and pay out on prizes.

So far, so good. But the Tax Agency had another surprise for them. Around about the Easter Holiday period this year the Investigating Office Against Fraud (ONIF) opened a probe into the main online gaming firms, claiming back taxes for the four years that the companies had been operating in the country without legal coverage. This inspection coincided with the start of the period for requesting operating licenses.

Officially there is no connection between the tax probe and the awarding of licenses, but the idea was clear: “If you don’t pay me, you don’t get your license.”

The association of online gaming firms JDigital was up in arms against what it considers to be a revolutionary tax, arguing that there was no legal basis for retroactively taxing them before the Gaming Law came into effect.

JDigital claimed the government’s legal case rests on two laws: one approved in 1966 and the other in 1977 that have nothing to do with online betting. Through the media, gaming firms issued a veiled threat to pull out of Spain if the government insisted in its efforts to collect back taxes.

Based in Gibraltar, they have taken advantage of their illegal situation"

Like a savvy poker player, the taxman called their bluff and the online operators agreed an arrangement to get their affairs in order. The first to throw in the towel, Bwin, which last month agreed to pay the Tax Agency 33.6 million euros. Bwin was followed shortly afterward by Sportingbet, which agreed to cough up 17.2 million.

Betfair latter settled with the Tax Agency for 10 million euros, and in announcing the deal said the agreement put it in an “optimal position” to obtain a license to operate in the Spanish market.

Pokerstars, the biggest poker operator in the world from whom the tax authorities were claiming 200 million euros, also decided to fold. It was one of 53 companies awarded 277 licenses on June 1 by the Finance Ministry to operate in Spain.

Online gaming became officially legal on June 5, but companies were given until June 15 to adapt their websites and operating practices to the new regulations. Only websites with the Spanish domain (.es) can legally offer their service. Those sites that fail to do so will be blocked.

The government has created a seal for legal companies to post on their pages

After June 15, only licensed firms will be allowed to offer gaming services. Betters have until that date to retire funds deposited with operators or risk losing their money. Fines for irregularities could amount to 50 million euros.

In order for consumers to know whether they are betting on a legal site, the Finance Ministry has created a seal for companies to include on their pages. On the seal are the Spanish coat of arms and national flag and the words juego seguro (safe gambling).

In order to avoid fraud and money-laundering, all payments must go through Spanish banks. The maximum deposit for individual players has been set at 600 euros per day, 1,500 per week and 3,000 euros per month.

But not everyone is happy, especially rivals such as the casino, bingo hall and slot-machine companies Codere, Cirsa and Recreativos Franco that have been operating legally in Spain for years and dutifully been paying their taxes.

It was a group of such companies that in 2010 had presented a suit seeking to have unlicensed online gaming operators shut down.

“These companies, almost all based in Gibraltar for tax purposes, have taken advantage of their illegal situation to create a brand with multi-million sponsorship of [the likes] of Real Madrid [in the case of Bwin], which they could afford because they weren’t paying taxes,” a Codere spokesman says.

“And when they get their licenses, they will still be in an advantageous situation because they already have databases with thousands of clients, while the rest have to start from zero.”

And the online betting business is a cake everyone in the gaming business would like a slice of. The sector shifted a total of 370 million euros last year and JDigital predicts this will increase gradually to 840 million by 2014. The Tax Agency is expected to take in between 80 and 120 million euros in revenues.

However, Sacha Badelt, the chief executive officer of NetBet, an online gaming company that recently set up in Spain, believes that “while the Spanish market has a lot of development potential, there isn’t enough room for so many companies” and expects consolidation in the sector.