PokerStars Accused Of €300m Fraud And Tax Avoidance In Italy

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Thursday, March 12th, 2015 | Written by Stephen Smith

Canadian company Amaya Gaming owns the world’s largest online poker operator, PokerStars, which has branches across the globe, including the group’s Italian subsidiary called Halfords Media Italy. On Wednesday, the branch subsequently came under attack by Italy’s Guardia di Finanza (GDF), after the finance police accused PokerStars.it of fraud and tax evasion amounting to more than €300 million ($317 million) between 2009 and 2014.

The GDF is calling the investigation operation “All-In”, and on its website said its stated aim was to “bring back to Italy the real market value of the transactions between the company of an international group recovering the higher undeclared income to Italian tax authorities.” Meanwhile, PokerStars.it is still operational during the ongoing investigation.

Moving Money Around

According to the Guardia di Finanza, the €300 million fraud and tax avoidance scheme involved PokerStars.it moving earnings generated in Italy over to Malta and the Isle of Man in order to benefit from more favorable gaming sector taxes. Italy levies a 22% rate on gaming taxes, compared to 20% for the Isle of Man, and 18% for Malta, but Italian regulators have alleged PokerStars main aim was to receive Malta’s 0% corporate income tax rate, rather than the 27.5% tax placed on a company’s gross revenues in Italy. Elaborating further on the issue, David Lindsay from the Malta Independent online, wrote:

“Italian authorities allege that Halfords Media purposefully misreported part of its revenues in order to avoid Italy’s high taxation on gambling services. To do so, the investigators believe that the company has used transfer pricing methods to move its income the more fiscally convenient Malta and Isle of Man while keeping the costs in Italy.”

PokerStars Working With Italian Authorities

In the meantime, PokerStars has denied any wrongdoing, and a statement released by PokerStars Head of Corporate Communication Eric Hollreiser explained that the company has been assisting the Italian tax authorities since they first launched their audit a few years back, with Hollreiser expressing his confidence that the issue would soon be resolved. He further stated that PokerStars had already paid €120 million in taxes over the period covered by the disputed audit, before adding that like “many other global e-commerce companies, we vigorously dispute the stance of the tax authority regarding local establishment.”

Business As Usual For PokerStars.it

With the Guardia di Finanza’s investigation ongoing, PokerStars was keen to highlight its cooperation with the Italian authorities, and emphasize that it was business as usual at PokerStars.it. As Eric Hollreiser’s statement explained:

“The audit is ongoing and we hope to resolve the issue in our favor soon. In the meantime, our operations continue as usual on www.pokerstars.it and we remain focused on delivering the most popular online poker service in the Italian market.”

Will Charges Impact PokerStars’ Return To The US?

Despite its confidence, however, PokerStars may be concerned that the latest accusations of fraud and tax evasion may negatively impact its attempts to secure a foothold in the USA’ regulated iGaming market. Granted, the purported tax evasion was carried out by an associated company, and it was ongoing from before Amaya Gaming acquired the company. Nevertheless PokerStars cannot afford the bad press at such a sensitive time in its New Jersey gaming license application, especially with the process already delayed, possibly due to Governor Chris Christie currying favor with Sheldon Adelson in return for support for Christie’s presidential campaign in 2016.

California would also prove a hugely lucrative market for PokerStars in the event of legislation, but the company has drawn opposition from a coalition of Tribes spearheaded by the Pechanga, and the latest accusations by the Italian authorities are sure to add further fuel to the fire.

Italy Targeting Other International Businesses

PokerStars is not the only international company presently under the scrutiny of Italian authorities, and regulators have also been carrying out an ongoing investigation against Google since 2008 concerning possible violation of Italian tax laws. Italian newspaper Corriere della Sera has stated that regulators are pursuing Google for around €800 million ($846 million) of taxable income, with the Guardia di Finanza announcing this week it was close to finalizing a settlement with the US company.

Unlike the United State’s Securities and Exchange Commission (SEC), Italy’s Guardia di Finanza acts primarily as a law enforcement agency, with more than 68,000 employees combating a multitude of activities, including smuggling, drug trafficking, and patrolling Italy’s territorial waters.