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Paddy Power Mulls Offshore Move

Thursday, March 4, 2010

Upon the publish of financial results for the year 2009, Paddy Power’s Chief Executive, Patrick Kennedy, warned that further increases in the tax burden on Irish bookmakers could force the company to locate some of its operations offshore - likely to Gibraltar - mirroring recent moves by UK rivals, Ladbrokes and William Hill.

Speaking to the Irish Independent on March 2, Kennedy explained that the government’s proposal to double tax on internet and telephone betting, to 2% of turnover, would put the company at a further disadvantage to rivals based offshore. While emphasizing the company’s “strong commitment” to remaining tax resident in Ireland, Kennedy said it may become a necessity to relocate in order to keep up with its competitors, should the tax burden continue to increase.

"This is a very competitive, cut-throat market,” Kennedy told the paper. “The gap between doing well and underperforming is very, very narrow - you can't take too many structural impediments to your cost base, [and this issue] could be the tipping point.”

Kennedy says that Paddy Power paid around EUR18m in taxes - namely VAT and corporate income tax - in 2008, via its online and telephone betting operations, and said that if the turnover tax was doubled, company profits would be reduced by a further EUR2.5m annually. Should the company choose to join the ‘exodus’ offshore, he explained, Paddy Power's tax liabilty could be halved.

In a statement accompanying the company’s 2009 results – which revealed a 15% drop in pre-tax profits to EUR67.2m, in what has been described as "a good year for punters" - Kennedy explained the company’s stance on the tax spat:

“In recent months we have engaged with the Irish government on the potential for taxation of telephone and online betting in Ireland. In our view, such a tax will raise only relatively modest revenue, will be costly to implement and will be problematic, if not impossible, to enforce; points we have made to the government with accompanying evidence.”

“We have nonetheless never had an objection to paying tax on the internet betting of Irish customers, assuming that any tax is enforceable on all internet bookmakers providing services to the Irish market, and not solely Irish bookmakers who provide valuable sustainable employment.”

In consultations with Irish bookmakers last year, the Irish government agreed to defer the introduction of the tax hike, and is reassessing its options.