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No more bets?

A new law in Sweden which comes into operation in 2019 will force all sellers of gambling services whether through physical presence or through digital transmissions from within or from outside Sweden to apply for a licence and to be taxed in Sweden for the revenues from this activity in Sweden. Photo: Shutterstock

A new law in Sweden which comes into operation in 2019 will force all sellers of gambling services whether through physical presence or through digital transmissions from within or from outside Sweden to apply for a licence and to be taxed in Sweden for the revenues from this activity in Sweden. Photo: Shutterstock

Because I have lived in Sweden for several years, served as Malta’s Ambassador to Sweden for four years, speak Swedish and have worked for a Swedish multinational, I regularly follow Swedish news and economic and legal developments.

In the last part of 2017, I was following the proposal for a new law in Sweden that aimed to replace the Swedish gaming monopoly. This monopoly was set up many decades ago together with the alcohol monopoly. When Sweden joined the EU, these monopolies had to be disbanded over a period of time to allow for fair and free competition.

The reason these monopolies had been set up in the past had been twofold. One was to ensure government income from these activities and the second was to control the use and misuse of these two addictive activities.

Swedes, and especially the poorer half of the population, have traditionally been known to suffer from excessive addiction to alcohol and to gambling. In order to reduce this social distress, the former, pre-EU membership Swedish governments had taken over these activities to control the amount people spent on gambling and the amount they drank.

Now that these monopolies will have to be disbanded, the need to protect the weakest members of society from the scourge of the addiction remains. The need and desire of governments to retain an income, in the form of tax or excise, corkage or other duties also remains.

In the gambling sector when Sweden joined the EU, the liberalisation of the market occurred and many, far too many, gambling companies were set up in Sweden to fuel the national urge and weakness linked to gambling. All forms of sport, lotteries, card games, casinos were set up. At first the government was not unduly worried because these new companies, existing side by side with the Swedish monopoly, generated revenues and were taxed at the standard Swedish corporation tax. Moreover, the physical activities such as betting shops and casinos could be, and were, controlled by the social health authorities and the undue over-betting by addicted or ‘red’ marked customers was controllable.

It was only when digitisation of the business occurred around the world and people turned away from betting shops on main street in towns and villages, to betting from the privacy of their home computer  which granted them comfort, privacy and secrecy, that the Swedish legislators and sociologists began to worry.

When Malta, with Cyprus and Gibraltar, found the loophole in the digital world of gambling and betting and attracted companies from Sweden (but also from many other countries where gambling was the domain of the mafia and criminal gangs), that Sweden lost not only its power to control gambling for social reasons, but also lost its tax revenues.

The businessmen running gambling and casinos all moved rapidly into digital remote gambling, changed, or tried to change, the name of their nefarious activity from gambling  (which it really is) to gaming (which it not), and moved their headquarters to tax havens like Malta.

The locally set up companies paid lower wages, less rent for their residencies and little or no tax to the Maltese coffers and carried on their lucrative addictive and damaging business away from the controls of the Swedish authorities.

The EU allows free movement of services across borders and that is a good thing. It allows taxation at the place of residence of corporations and that is a good thing. It allows varying tax rates across borders and within each Member State and that is a good thing.

But it also calls for controls in the home country of the corporation adequate or equivalent to the controls within the borders of the clients and customers of the services. Since Malta did not satisfy either the adequate controls, or the adequate or equivalent taxation levels, the EU and Sweden called for the adoption of the Council of Europe Convention on The Manipulation of Sports Competitions, that called for the observance by companies providing gambling services from one EU country to another EU country of, what constitutes illegal or controllable gambling according to the  internal rules, definitions and regulations in the recipient country (where the customers reside).

Malta was one of the only countries in September last year that blocked the adoption of this convention by the EU. Finance Minister Edward Scicluna crowed like a proud cockerel that Malta had actually utilised its veto. We utilised our veto in order to allow for the destruction and addiction of Swedish families. This convention would have forced gambling companies targeting Swedish customers to restrain from excessive advertising and unlimited gambling amounts. The secrecy that this veto allowed also attracted more criminal activity and money laundering through the gambling industry and also attracted more of these companies to our shores. Gaming, unlike gambling, is the creation of computer games that are sold once in a download or a physical CD and then played by the buyer for fun without money involved.

Now Sweden woke up in 2016/2017 and proposed a national law which will come into operation around 2019. This law will force all sellers of gambling services whether through physical presence or through digital transmissions from within or from outside Sweden to apply for a licence and to be taxed in Sweden for the revenues from this activity in Sweden.

Since most Swedish gambling companies, present in Malta, have Sweden as their main market that produces between 40 per cent and 70 per cent or sometimes even more, of their revenues and pretax profits in Sweden, this law causes them to resume paying Swedish tax and soon to abide by social and other restrictions set up to reduce the effects of addiction in Sweden.

Thousands of jobs in Malta are threatened when the Swedish gambling monopoly will come to an end

The first results of the proposed  law was observed in Malta and Sweden last week when the first cost reduction exercise and job losses by a Swedish gambling company was announced in the Swedish press. Are there others to follow?

Possibly.

According to a Svenska Dagbladet’s headline and article “Malta’s attraction as a gambling paradise can come to an end”.

The article goes on to state that: “Thousands of jobs in Malta are threatened when the Swedish gambling monopoly will come to an end. At the same time the EU is on its way to reform its taxation regime, which will make it less interesting for companies to seek to locate their business abroad. The reform of the Swedish gambling rules was proposed in March 2017 and it is thought that it will come into operation in 2019. According to this change all companies need a gambling licence and will pay 18 per cent tax on all profits from their activities. The reform of the Swedish gambling monopoly is hardly the only worrying cloud in Malta’s clear blue sky.

“In these last years many other EU countries have started the process to introduce national licensing systems for online gambling services to attract these companies back as this form of online activity is set to continue to grow. Within the EU discussions are being held – urged on by Germany and France – to harmonise taxation for IT companies in order to make it impossible for countries like Malta to lure foreign company owners with its five percent tax rate.

“Previously this tax reform proposal had been opposed by the UK. With Brexit the name of the game has changed.

“As this newspaper has written about in earlier editions, this EU initiative has come about mainly as a result of the bringing to light in the disclosures of the Panama Papers by Malta’s most famous investigative journalist who was murdered last October.

“Whatever these gambling companies, present in Malta, may say, Malta’s greatest attraction is just its low tax rate.”

Here again is another warning shot across Malta’s bows. Our two sacred cows, the renowned low tax rate created by application of the imputation system, and the too-oft acclaimed as good job creator, the addictive and damaging gambling industry, are threatened.

We cannot shoo these threats away or fire petards, from the two main political parties, to frighten away evil spirits as we do at the start and end of our religious village festas. They will not go away. Daphne died telling us this. The European Parliament, the European Commission and some of the most influential EU leaders are telling us this. The end is nigh! I may sound like a Casandra but it will be to all our benefit to take preparative and evasive action.

I suggest a few things that can be done but I am sure there are many others:

Adopt the Council of Europe Convention on the Manipulation of Sporting Activities.

Reduce our corporate tax formal level from 35 per cent at present to 20 per cent or lower.

Eliminate tax imputation for owners (whether residents in Malta or abroad), of corporations, thus retaining the formal distinction between the company, a legal subject and its owner or owners which are separate legal subjects. One may not pay the tax obligations of the other without the recipient of this benefit receiving a taxable benefit in kind. (Expect more inputs from me to this debate on elimination of tax imputation in future essays.)

Attract other bona fide industries to Malta instead of the abundance of shady businesses whose sole aim is money laundering or tax evasion that now populate our island.

Daphne should not be forgotten, she will not have died in vain. Otherwise this latest turn of the roulette wheel may soon be the last one.

John Vassallo is a former Senior Counsel and Director for EU Affairs at General Electric, a former Vice President EU Affairs and Associate General Counsel Microsoft and a former Ambassador of Malta to the EU.

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