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Emily D. Swoboda
 

Costa Rica: New Tax Vexes Operators

24 February 2003

One week after Costa Rica imposed a new tax law geared at improving the image of the country's I-gaming industry, one of the national banks has cut off nearly 40 accounts belonging to online gaming companies.

The Banco Nacional accounts were used mainly by the operators to meet payroll; however, the move still has many in the industry scratching their heads.

"We are getting mixed signals here," said one Costa Rican operator who wished to remain anonymous. "On one hand, they are telling us they want to tax us, which is fine, but then on the other they are saying we can't be account holders at the national bank."

Eduardo Agami, president of a trade association for Costa Rican sports book owners, said even in light of the recent developments, Costa Rica is still the best place for operators to base their business.

"When you look at other jurisdictions, they don't have the work force or the infrastructure Costa Rica does," he said. "The banking move is going to give some operators a headache or two, but it won’t be the demise of anyone."

David Carruthers, CEO of BetOnSports.com, a leading Costa Rica-based online sports book, agrees with Agami.


"Some of the government's original proposals would have made certain operators pay more than $1.2 million a year in tax. We told them that if that plan had passed, the entire industry would move to another jurisdiction."
- Eduardo Agami

"I don’t think this is going to lead to the mass exodus that everyone is speculating about," he said.

Officials with Banco Nacional didn't return repeated requests for comments. Government regulators also failed to comment on the new tax law.

Under the code, operators with 20 or fewer employees have to pay roughly $20,000 per year in new taxes. Sports books with 21-40 employees have to pay $40,000 dollars per year, and sports books with more than 60 employees will owe $60,000 to the Costa Rican government. Payment of the new tax is due by March 9.

Agami said not all operators were pleased with the new tax scheme but that his group worked tirelessly with government officials to work out a plan that was feasible for everyone.

"Some of the government's original proposals would have made certain operators pay more than $1.2 million a year in tax," he said. "We told them that if that plan had passed, the entire industry would move to another jurisdiction."

Agami said he is now more concerned about the banking situation. He said he wasn't sure what the impetus behind the bank's decision was, but that pressure from the United States to get the Costa Rican banking system in line with the Patriot Act could have led to the move.

Some speculated the move was aimed at preventing Costa Rica from being blacklisted by the Financial Action Task Force for its loose banking regulations.

Costa Rica has long been one of the more loosely regulated jurisdictions for online casinos and sports books because operators needed only a business license from the government to set up Internet gambling servers.

Carruthers said some operators might be hard-pressed to pay the new tax on only a month's notice. However, he said, the most any operator will have to pay is $60,000, and if someone has trouble paying that much in taxes, he or she "might want to reconsider their position in this industry."

He said there might be some operators who consider moving to a jurisdiction were there is no tax, but like Agami, he feels Costa Rica is still the best place to base his business.

Fortunately for players, said Agami, is that it is common practice for Costa Rican online betting sites to use foreign banks for player payouts and to fund promotional campaigns. While players aren't in jeopardy of losing timely payouts, Agami said some operators might struggle to meet payroll while they figure out what to do with their other accounts.

Many predict that Banco de Costa Rica, the other large national bank that services some sports book operators, will follow suit and stop doing business with the industry.

The sports book operator who didn't want to be named did indicate that U.S. officials have been investigating many of the owners in Costa Rica and trying to find ties to organized crime and money laundering. He said he was investigated thoroughly because one of his account holders had been involved in illegal activities.

Although the operator did not receive criminal charges, he said officials are desperately searching for ways to prosecute those in the industry.

"They just haven't got any evidence yet, but it isn't due to a lack of trying, that is for sure," he said.

Costa Rica: New Tax Vexes Operators is republished from iGamingNews.com.
Emily D. Swoboda
Emily D. Swoboda