Betfair Does Malta

Officials with Betfair, the world's leading P2P betting exchange, say the company's newly acquired license to operate in Malta is strictly for the purpose of basing a new betting product slated for launch later this year, but it's hard to ignore the message the Malta presence sends to British officials.

"The license we have obtained in Malta is linked to an exciting new product that Betfair hopes to introduce to the betting market later this year. There is no reason to think that we intend to move the exchange business offshore." - Antonia Sharpe Betfair

Betfair CEO Stephen Hill pointed to three elements that make Malta an appealing jurisdiction for Betfair.

"Malta's excellent technological infrastructure, its progressive and responsible gambling legislation and its E.U. membership were the three key reasons for us applying for a license there," Hill explained.

The move could also be seen as a warning sign to the U.K. Treasury, which is considering the implementation of a new tax scheme for betting exchanges, and Betfair execs have acknowledged that it would be relatively easy to move the bulk of its operations to Malta if the United Kingdom adopts an unfavorable tax scheme.

Because Malta is part of the European Union, Betfair could move the core of its business operations there and face advertising restrictions in the United Kingdom. The company could also relocate its hosting facilities and servers in Malta while maintaining administrative offices in London.

Betfair pays 15 percent of its gross commission revenue under the current U.K. tax scheme, which is similar to the scheme for bookmakers. The 15 percent plan was agreed upon in the last budget despite heavy lobbying efforts from High Street bookmakers who argued that Betfair should be assessed on its matched bets, not on commissions.

To placate traditional bookmaking firms, Chancellor Gordon Brown in March 2004 ordered a Treasury review of the tax treatment of betting exchanges. The review is said to be nearing completion, and the commission could release its findings this summer.

It's possible the review will recommend that the status quo be maintained, but Betfair has a "plan B" now if changes that are unfavorable to the company are made.

Traditional bookmakers have proposed that "non-recreational" punters be taxed differently, although defining and identifying such punters could pose a challenge.

Betfair would likely reject any proposal calling for a higher tax on the gross profits or an additional tax on clients' winnings unless traditional bookmakers agree to pay a higher percentage as well.

A frequent criticism leveled by traditional bookies is that a number of Betfair's clients are using the exchange to operate as bookmakers without the mandatory payments of duty and tax that would normally be due.

Betfair has argued, however, that the exchange is the primary bookmaker because it ultimately accepts bets placed by punters and then ensures that winners are paid. The commission on winning bets, it argues, compares directly to the gross profit earned by a traditional bookmaker.

As for the possibility of Betfair moving the bulk of its operations to Malta, Antonia Sharpe, the company's head of public relations, said too much is being read into the Maltese license.

"The license we have obtained in Malta is linked to an exciting new product that Betfair hopes to introduce to the betting market later this year," Sharpe said. "There is no reason to think that we intend to move the exchange business offshore."

A move to Malta by Betfair wouldn't mark the first time a major British betting brand moved offshore for tax purposed. Several major bookmakers moved to low-tax jurisdictions (such as Gibraltar, the Isle of Man and Alderney) in the late '90s to escape the high British betting tax.

The U.K. Treasury nixed the old tax scheme in 2001 in favor of the current 15 percent tax on gross profits, prompting British bookmakers to move their interactive gambling services back to England.