RE: Fall31 Oct 2014 17:44
New EU VAT rules on electronically supplied services from 1 January 2015
From the 1 January 2015, VAT rules relating to electronically supplied services for EU established business will change with the location of the customer and not where the supplier is based will now be considered for VAT purposes. This means that the VAT regulations and rate of VAT that will apply will no longer be those of the supplier’s country; they will be those of the customer’s country.
This new legislation is a game-changer for eCommerce in the EU and in our view will capture iGaming given “accessing automated on-line games which are dependent on the Internet, or other similar electronic networks, where players are geographically remote from one another?? is listed in the directive as one of services to be captured.
So what does this mean? We think Germany & Ireland are a risk
Overall it not as bad as it sounds as (i) this new VAT directive has a provision that exempts betting, lotteries and other forms of gambling, from VAT subject to limitations laid down by each Member State. After reviewing all EU member states VAT rules we have found that the majority of countries exempt VAT on online betting and gaming transactions. For example, in UK VAT laws exempt the “placing of bets or the playing of any games of chance and right to take part in lottery??, as does the majority of other EU states. However we estimate that these new EU VAT rules will capture online gaming revenue in Germany (not betting as that is exempt as it is already taxed under RennwLottG rules) and Ireland as there are currently no online gaming regulations or tax laws pertaining to online gaming in these markets. VAT in Germany is currently 19% and in Ireland is 23%.
Potential company earnings impact-bwin significant, the rest not material
Our analysis suggests that the only real impact from this new digital EU VAT directive will relate to companies that have revenues in Germany and Ireland.
Under this scenario, we think Bwin stands out as having the biggest potential downside to earnings from the implementation of these VAT rules given 26% of H1/14 revenue was in Germany. We would estimate 12% of bwin’s German revenue was online gaming and that the group would incur €13m to €15m VAT tax pre any offsets or a 15% downgrade to next year’s consensus EBIT forecasts.
While for Betfair, Playtech, William Hill, 888 and Ladbrokes we see limited impact given Germany is much smaller for all these operators.
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