PokerStars’ Italian Division Embroiled in €300 Million Tax Evasion Charges
Last Wednesday (March 11), the La Guardia di Finanza di Italia released a press statement announcing that they have filed tax evasion charges against Halfords Media Italy Srl, the IT marketing subsidiary of PokerStars in the Italian jurisdiction.
Touted as a large-scale tax evasion fraud amounting to €300 million (£214 million), Italy’s financial authorities allege that Harlfords Media, through its CEO, had willfully failed to declare a considerable amount of taxable revenue supposedly earned in Italy. La Guardia di Finanza asserts that by using the transfer pricing methodology, Halfords Media lowered the value of the online gambling services rendered by PokerStars Italy to parent company Rational Group.
Transfer pricing, also known formally as Base Erosion and Profit Shifting (BEPS) makes use of a separate accounting system that enables globally-operating corporations to attribute the net revenue, or net loss before tax across countries in which they do business. As a rule, the transfer prices used must be set at “arms length,” which means the transfer price used should be similar to the price used for transactions consummated with other independent and unaffiliated companies.
The Organisation for Economic Co-operation and Development (OECD) supports this method as means of avoiding, if not eliminating issues about depriving governments of fair share of taxes due from global corporations, whilst alleviating the exposure of multinational companies from potential occurrence of double taxation. As it is, certain legal issues continue to crop up because of the varying legal interpretations of domestic laws pertaining to the use of the transfer pricing approach.
As alleged by La Guardia di Finanza di Italia, Harlfords Media had used expenses related to the performance of numerous activities that should not have been considered as reductions against the profits earned in Italy. As a result, the Italian PokerStars subsidiary had accordingly misreported net income that was lower than the amount calculated by La Guardia di Finanza, albeit based on the Italian authority’s interpretation of laws governing the transfer pricing methods. Accordingly, the misrepresentation deprived the Italian government as much as €300 million in taxes. Still, reports have it that PokerStars, had beforehand aired through its lawyers, the company’s disagreement with La Guardia di Finanza’s interpretation.
Eric Hollreiser, the Head of Corporate Communication at PokerStars, expressed confidence that the tax evasion charges filed by the Italian financial authority will soon be resolved, as “PokerStars” has been in discussions with Italy’s tax authority even at the onset of the audit examination launched several years ago. Mr. Hollreiser maintains that they have operated in accordance with the applicable local tax regulations and have paid €120million (£85 million) throughout the period covered by La Guardia di Finanza’s audit. He added that like several other globally operating e-commerce firms, they strongly disagree with the standpoint of the tax authority as regards to local establishments.
Amaya Gaming, the current parent company of the Rational Group and PokerStars, issued a statement explaining that the reported tax dispute is relevant to PokerStars’ operations prior to the acquisition deal compacted in August 2014. Nonetheless, the merger agreement includes provisions covering certain income tax obligations and other liabilities that stem from operations prior to the merger, which could possibly surface after the completion of the acquisition agreement. The Canada-based Amaya Gaming gives assurance that the appropriate funds have since been held in escrow, which makes the company confident that the tax concerns raised by Italy’s La Guardia di Finanza will not apply to the results of operations in future fiscal periods.
