by
Martin Banks
Around the world, nations are struggling to determine how best to collect taxes from multinational giants like Amazon, Facebook and, notably, Google.
With increasing amounts of commerce moving online and away from physical and easily taxable premises, who gets to collect the taxes and where? The struggle takes different forms in different jurisdictions, depending on the relative reliance on national vs local taxes, income vs sales taxes, and so forth.
Google is such a prized target that the UK even calls its newest tool, officially called a diverted profits tax, the Google Tax. Implemented in 2015, it is intended to collect 25% of profits deemed to have been diverted through "contrived arrangements" -- regional sales offices in tax-free jurisdictions for instance.
Ironically, as outraged British taxpayers learned in recent days, the tax doesn't actually apply to Google, which has agreed instead to pay L130 million in settlement for taxes owing over the past ten years. It has been calculated that this represents approximately 3% of Google's revenues in the UK for that period.
In the US, the battle concerns the proposed Marketplace Fairness Act which is intended to let states collect sales taxes from online retailers even when they have no physical operations within the state. A version of the bill failed in the last Congress and is stalled in the current one.
In Russia, the struggle is over online gaming. This may seem idiosyncratic, but it makes sense. No industry has been more agile in avoiding national taxation than the multi-billion-dollar online gaming industry.
The biggest operators are all formally headquartered in low-tax and tax-free jurisdictions like Guernsey, Malta and Costa Rica.
Online gaming of any kind is a sensitive issue in Russia. Last October, authorities began blocking dozens of unregistered domestic and international gaming sites.
And this week Liga Stavok, a major domestic betting firm, announced that it had become the first company to secure an official betting licence. At the same time, details of a new central payment processing system, called TSUPIS, have been announced. Expected to launch over the next few weeks, it is intended to record all payments into registered gaming sites so they can be taxed.
All indications are that legalization of online poker will be Russia's next step. "It is necessary to create some comprehensive conditions which allow profitability and to get some taxes," says Maxim Kats, a former professional poker player and current municipal deputy in Moscow.
The public debate in Russia has been over the morality and social value of gambling as a whole, and whether poker is gambling at all. A number influential figures argue forcefully that poker is a game predominantly of skill, not of chance. Even Kirsan Ilyumzhinov, the multi-millionaire Russian businessman who heads the World Chess Federation, has expressed this view.
"Concerning online poker and its legalisation in Russia - it should be legalised; too many people are involved and are playing online," he told an interviewer recently."
But underlying the morality discussion, there is a serious tax debate too.
Vasily Anisimov, president of the State Lotteries Operators Association, says Russia is foregoing billions of rubles in potential taxes. Based on a proposed regime involving a 13% tax on players and 20% on poker operators, he believes Russia should be collecting 2-3 billion rubles annually.
Alexander Zakondyrin, a Moscow lawyer and politician, says this is money the nation badly needs. "Russians play poker, but their money goes abroad," he says. "In the current crisis situation, of low oil prices and sanctions against Russia, which excludes the use of foreign debt markets, Russia's budget needs additional income."
The Kremlin appears to agree. In 2014, Igor Shuvalov, Russia's First Deputy Prime Minister, ordered the Ministry of Economic Development and the Ministry of Justice to put together a report on the legalization, regulation and taxation of online poker.
And last year, at a meeting bringing together government officials and the leaders of a number of public interest groups, Shuvalov declared his view that poker is not gambling, but is an intellectual game which should be legalized. He indicated that tax revenues derived from it should be allocated for the development of chess and other sports.
The consensus formed around the issue means that the changes will almost certainly happen this year, Zakondyrin says.
And if Russia is successful, how many other nations will start insisting that major global internet service providers -- not just poker specialists -- physically locate servers inside their borders, the better to enforce regulation and, of course, collect revenues?
By: N. Peter Kramer
