The Tribune

By NICO SCAVELLA

Tribune Staff Reporter

nscavella@tribunemedia.net

THE head of the country’s largest web shop chain has confirmed that the government’s decision to extend the deadline for web shops to submit their bids for licences was due to a “discrepancy on the back taxes and the interpretation of what turnover is”.

Island Luck CEO Sebas Bastian told The Tribune that those “unanswered issues” between the two parties were the primary causes of the government’s decision to delay the deadline from February 20 to March 10.

However, Mr Bastian said those issues have since been “ironed out.”

“It was basically just a minor discrepancy on the back taxes and the interpretation of what turnover is,” Mr Bastian said. “Some people were interpreting turnover to be your gross sales, but in gaming it’s not like a conventional store. Turnover for us is basically the net win, sales minus payouts.

“So there was some set of people being taxed on sales, some people were taxed on sales minus payouts. So it was a little inconsistency, they ironed it out, it’s all fair in our opinion, and we’re just excited to move forward with the process.”

In January, Tribune Business reported that the government and the web shop industry were at odds over how the sector’s “retroactive taxes” were to be calculated, with the proposed method seen as “inconsistent” with the Gaming Act and international norms.

Sources disclosed that the main problem stemmed from how the Gaming Board was defining “gross revenue” in relation to the web shops.

Last month, Tribune Business also reported that the government had decided to extend the deadline for web shops to submit their licence bids by two-and-a-half weeks to March 10, with both sides at the time still seeking to completely resolve their differences on how the sector’s taxes were to be calculated.

The biggest issue, however, was how the Gaming Board was defining “gross revenue” in relation to the web shops. It was reportedly basing due retroactive taxes on “gross revenues” and “gross profits”, rather than “gross adjusted revenue” - the benchmark that the sector is arguing is the internationally-accepted norm.

Despite the various discrepancies and subsequent deadline extension, however, Mr Bastian told The Tribune that the decision to extend the deadline was the right move in hindsight.

“I think it was the right thing to do,” he said. “It was some unanswered issues that had to be ironed out, and to keep in compliance with the law, they had to delay it so that the intention of the law and how it was laid out, you had to do certain things before you submit the RFP(request for proposal).

“And there were some discrepancies in those items that we had to do, so we had to solve those before we submit our RFP’s so we could be in compliance with the law. But the process is moving very well, the government is getting it right, and we’re happy with how it’s going so far.”

As part of the transition to a legalised web shop industry, all operators received forms from the Gaming Board asking them to disclose financial information necessary to determine their six-year “retroactive” tax liabilities.

The forms asked operators to disclose their “gross revenues” and “gross profits”, and The Tribune’s sources said the government/Gaming Board plans to calculate due “past taxes” as a percentage of these figures.

However, they argued that this would contravene established international norms when it came to gaming industry taxes, as the government would effectively be taxing players’ wagers – not the web shop operator’s gross revenues.

Additionally, multiple Tribune Business sources previously explained that the worldwide gaming industry was taxed on “adjusted gross revenues“, which is the difference between a player’s wager (sum bet) less the winnings he/she takes home.

The difference would be the revenue upon which the web shop operator gains an economic benefit from, effectively representing his gross revenue.

As illustrated in Tribune Business, a player can – for example – wager $100, engage in gambling activity that generates sums up to $5,000 but, in the end, only walk away with $20 in winnings. The web shop operators were thus arguing that it is the $100-$20 difference, $80, that represents their “adjusted gross revenue” and what they should be taxed on, not the $100.

The matter has reportedly been further complicated by the government, through the Gaming Board, sending out “demand letters” for the due taxes based upon the “gross revenues” and “gross profits” calculations.

In January Mr Bastian said despite a few unspecified “issues” between industry operators and the government, his company was handling the industry’s transition to a legal entity “pretty well”.

Mr Bastian said his company has not experienced any “hiccups” during the transition process to regulate web shops.

Rather, he said the “issues” that arose have already been dealt with between the government and the industry “behind closed doors”.