Anecdotal evidence suggests that, despite the hype, most electronic commerce is currently business-to-business, because individuals are afraid to trust their credit card details and other personal information to the Internet. This may change: the Government intends to introduce its Electronic Communications Bill in the next Parliamentary session, to create a new legal framework which, among other things, will enable people to do business over the Internet with security.

Recent developments in the betting industry suggest that when the changes come they may be quite sudden. In May, bookmaker Victor Chandler began taking tax-free bets from UK customers after transferring his off-course credit betting business from London to Gibraltar; the catalyst for this move was the imminent fall in the Irish betting duty from 10% to 5% and the declaration by some Irish bookmakers that they would target Britain for custom. Betting duty in the UK is 9%. In July, the court decided in Victor Chandler International Ltd v Customs and Excise Commissioners that the prohibition on betting advertisements in the Betting and Gaming Duties Act 1981 was limited to advertisements in documentary form: Victor Chandler could therefore place advertisements in Teletext inviting, and otherwise relating to, the making of bets by UK residents. Shortly afterwards, Ladbrokes announced that it was transferring its telephone betting service offshore too; other major bookmakers are considering similar plans. Customs are monitoring the effects on their betting duty receipts.

Three key factors prompted this market change:

  • modern technology removed the need for an onshore business presence;
  • differential tax rates gave an incentive for doing business offshore; and
  • the court decision removed legal insecurity.

The first two factors are already present with electronic commerce; the forthcoming Electronic Communications Bill may provide the third.

However, much will depend on people’s preferred distribution methods - ie, how they prefer to meet the supplier. Where customers wish to examine the goods before buying, or to deal with the seller face to face, or to enjoy the ambience of the shop as part of the deal, traditional distribution methods will remain powerful - even if electronic commerce has financial advantages. For example, Customs doubtless hope that British gamblers will continue to make their bets onshore in betting shops where they can meet their friends to watch the races - even if they can get better odds over the telephone from Gibraltar.

For further information on tax and electronic commerce, speak to your usual KPMG tax contact.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.