Joint Conduct Agreements and the Gibraltar Gaming Bill

An Agreement for the Shared Conduct of a Gaming Business (ASCGB), sometimes also referred to as a Joint Conduct Agreement (JCA), has long been a prominent feature within the online gambling and betting sector. In terms of a typical JCA, two (or more) entities within an online gambling / betting group agree to jointly conduct a gambling / betting business and to share the revenues of that business accordingly. While JCAs are not specifically limited to any particular jurisdiction, they have commonly involved an operating entity located in Malta and regulated by the Malta Gaming Authority (MGA), acting together with a counterparty in Gibraltar. The Gibraltar counterparty would typically be primarily responsible for certain defined functions, such as the performance of the marketing functions required in the conduct of the business.

The Malta Gaming Authority is generally required to pre-vet and formally approve any such proposed agreement, as set out in its published Procedure for a Shared Conduct of Gaming Business Agreement. As part of the pre-vetting, the MGA will generally also perform certain due diligence procedures on the proposed counterparty to the agreement, and will review the proposed agreement to be entered between the parties.

The Gibraltar Gambling Bill, if enacted as proposed, would make the performance of ‘marketing services’, defined in Section 17(1)(f)(i) of the Bill as “conducting, managing, arranging, booking facilitating or providing advertising or marketing services for gambling wherever in the world the gambling takes place”, a licensable activity. While certain exclusions would apply, these appear to be applicable primarily to the provision of intra-group services where the recipient of any ‘marketing services’ is itself a Gibraltar licence holder, or where the advertising or marketing is carried out on behalf of a licence holder by a person or entity that carries on, and holds themselves out as carrying on, to or for the public at large, the business of advertising or marketing in publications and broadcasting media intended for an audience in Gibraltar.

Should the proposed Gambling Bill be approved and adopted as currently drafted, any Gibraltar-based entity which is in a JCA with a party outside of Gibraltar will be required to obtain a Gambling Operator Support Services Licence in Gibraltar.

Before issuing such a licence, the Gibraltar Authority must be satisfied that the applicant will have, and continue to maintain, sufficient substantive presence in Gibraltar, having regard to the following matters:

• The nature, extent, purpose and usage of the remote gambling equipment located or to be located and maintained in Gibraltar;
• The number and nature of jobs to be created and maintained in Gibraltar;
• The amount of tax revenue that will accrue or is accruing to the Gibraltar government; and
• Such other factors as appear to the Authority to constitute a sufficient substantive presence in Gibraltar.

The proper functioning of the JCA, particularly from a corporate tax and VAT perspective, has always been dependent on each of the parties to the agreement maintaining sufficient substance, aligned with their respective functions and which would enable them to carry on the functions allocated to them. Accordingly, it would generally be expected that an entity in Gibraltar which is presently party to such a JCA should already maintain a level of substance in Gibraltar commensurate with the activities which it has been tasked to carry out under the terms of the agreement. However, what is not yet clear is what level of substance will be considered sufficient by the Gibraltar regulator.

Once this becomes clearer, it will be important for businesses to evaluate whether the costs and onus of compliance with the new Gibraltar regulatory regime could outweigh the benefits that may be achieved in terms of the JCA, and whether there are any alternatives that could provide similar benefits at a lower cost. These benefits would include potential VAT efficiencies of the procurement of certain marketing services in Gibraltar, a territory that is situated outside of the EU VAT zone. This evaluation will also be relevant to operators having a Gibraltar entity and which apply the Malta VAT Grouping regime.

Other locations situated outside of the EU VAT zone include the UK, which offers a mature and transparent business environment, underpinned by a strong legal and regulatory framework, high-quality infrastructure, access to a deep and diverse talent pool, and well-established professional networks. In addition, some groups may already have sufficient substance in the UK to carry out the market activities under a JCA.

In addition to the developments in Gibraltar, there are other matters that should be considered as part of any review of current operations. For example, the Maltese tax authorities are also exploring the possibility of amending local VAT rules, in particular by further limiting the scope of the VAT exemption for gambling/betting activities.  

Get in touch

Oliver Tilley | Tax Partner, Deloitte UK

Vickram Khatwani FCCA | Director, Deloitte Gibraltar