For many years betting, gambling and gaming companies have chosen to ‘offshore’ significant parts of their operations (data centres in particular) to jurisdictions like Gibraltar, Malta, Isle-of-Man and the British Virgin Isles in order to massively reduce their tax bills.

In terms of their online gaming businesses, they were able to take advantage of these territories’ low-tax economies paying tax at the offshore jurisdiction’s low rate because the “sales transaction” was deemed to have take place ‘inside’ the data centre.

From a data centre operational point of view, there were always significant disadvantages to offshoring the data centre operations – but the tax advantages that offset these operational difficulties were more than enough to compensate.

No more will this be the case because from 1st December 2014, the UK Government is changing the law in order to claw back the £300 million it says it is losing in tax revenue. The British Government is accomplishing this by changing the legal place at which the “sales transaction” takes place from the data centre to the ISP address of the gamer or gambler here in the UK.

As a result the tax advantages UK gaming companies achieve by locating their data centre in these remote territories will soon vanish.

So what are the disadvantages of offshoring data centres and why would these gaming companies be well advised to bring them back home to the UK?

1) Internet Bandwidth

These offshore locations mostly have limited and expensive internet bandwidth available – often with only a few connectivity providers to choose from.

London data centres on the other hand – like the ‘carrier-neutral’ Virtus LON1 facilities – has a highly diverse eco system of connectivity providers and almost limitless bandwidth available.

2) Electricity

Often in these offshore locations electricity is significantly more expensive and has a much greater risk of ‘supply outage’. For example in the Isle-of-Man there is only a single power station representing a ‘single point of failure’ as far as data centre incoming supply is concerned.

Contrast this with London data centres like Virtus LON1 where there are dual resilient feeds to the National Grid which has multiple paths to some 180 or so large power stations plus thousands of small generating sources.

3) Accessibility for IT staff

The largest pool of experienced IT people is here in the UK, but with the previous requirement to locate a data centre in a tax haven, life has been difficult for the IT people. Some have had to relocate of course, but for many they are forced to make an often long and tiring flight – wasting a whole day or more, when in reality they only needed an hour or less at the data centre.

With a London data centre like Virtus LON1 located just five minutes off M25 Junction 25 it’s extremely easy for IT professionals to get to and from The City, Canary Wharf and anywhere outside of London.

Cost versus tax

Until this new legislation was announced by the UK Government, the additional costs and technical difficulties of operating an offshore data centre have not concerned the gaming operators because they were considered small compared to the massive tax advantages available.

However, that will change because once the tax advantage is removed gaming operators will find that their cost base is excessive and any incentive to stay will be gone. Urgent action will be required to stay even cost neutral.

‘Onshoring’ a gaming data centre – bringing it back home to London – is a quick and easy way for gambling and betting companies to achieve this objective.

Internet bandwidth and electricity are cheaper as well as more resilient and available from many competing suppliers. The cost and time wasted in flying IT professionals around to offshore locations is also taken out of the equation.

As a result gaming company CFO’s and CTO’s will have a lot to think about in the coming year.

If this blog makes you reconsider your offshore operations, or if you know someone who maybe affected, then please consider Virtus Data Centres.

We at Virtus are expert at migrating data centre operations into our data centres without interruption to their 24/7/365 online businesses.

We’ve migrated dozens of customers and are hosting a number of gaming companies. We operate the most modern and flexible data centres in London and have a 100 per cent uptime record since our business began.