In brief, the answer is “NO”. Many believe taxing offshore casinos and allowing them to legally take USA customers is the future of online gambling. The Federal government is currently starved for revenue, and any sort of income – be it from gambling or otherwise – is better than nothing. Unfortunately, the idea of trying to efficiently tax an offshore gaming operation each year is not realistic. There are many hurdles in the way of this proposed alternative to the current “illegal” status of online gambling in the USA, some of which are practically insurmountable.

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Offshore Casinos Might Balk at USA Taxation, and Hide behind WTO

It’s no secret that the WTO (World Trade Organization) has made it clear that the USA violates its GATS (General Agreement on Trade in Services) policy. In a landmark 2007 decision, the WTO essentially split the difference in the dispute between Antigua and Barbuda and the USA: The Federal Wire Act and two other statutes did violate the WTO’s GATS policy, but at the same time, the WTO agreed with the USA’s argument that the prohibition of online gambling was in the best interests of the public’s health and morals. Antigua and Barbuda later filed a $3.7 billion dollar lawsuit against the USA, which ultimately went nowhere.

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If offshore casinos were legalized on the condition that they pay tax to the USA, there might be some law abiding operations that agree to this policy. Most offshore casinos, however, would simply disagree with any attempts to levy tax on their businesses, because taxation would significantly cut into their revenues. Instead of closing up shop, they would relocate to jurisdictions the USA can not tax; or, they would just not comply at all and continue operating as they have been in recent years with impunity. In reality, the average USA gambler wouldn’t know whether or not the casino site they’re patronizing pays taxes to the USA, and the USA could not start blocking non-tax-paying websites due to WTO policies.

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Offshore Casinos Disagreeing With USA Taxation Would Gain Competitive Advantages

The reasoning behind this thought is commonsense. If law abiding casino “A” pays 20% of its revenues to the USA, while law breaking casino “B” pays NO taxes to the USA, it’s clear that casino B would have an unfair advantage over the competition that allows itself to be taxed. Casino B would essentially have 20% more revenue at their disposal, and could lure customers away from taxed casinos with bigger bonuses, better promotions, or other perks resulting from flouting USA tax law.

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While it’s true that Casino B might have more difficulty processing payments – since they would not be recognized by USA credit card companies as a legal online casino – ultimately the taxed casinos would fare worse than those that remain operating untaxed. The cost of uncoded credit card processing, which allows USA gamblers to currently gamble offshore, would never rival a 20% tax rate. Casinos would examine which scenario would yield more profit and then choose accordingly: get taxed as a legal USA casino and lose substantial revenues, or evade taxation and continue to process payments illegally.

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Accuracy of Offshore Casino Revenues and Profit Amounts Is Almost Impossible to Track

Finally, would every offshore casino subject to USA tax law really paint an honest picture of its revenues and profits? The USA would have to rely on the good nature of casino operators to report accurate numbers each year. Undoubtedly, these numbers would be fudged in the interests of paying less tax, and there’s not much the USA could do about the situation since the business does not operate within USA legal jurisdictions.

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An “Honest Abe” approach to collecting tax from offshore casinos would never succeed against human nature and the ability to move money to secret banking districts (Panama, Switzerland, Cayman Islands, Liechtenstein) that would shield a casino’s true income amounts.

What Is the Only Way Forward?

After debunking the thought that the USA could actually make money from offshore casinos, it makes sense to offer a solution to the problem at hand: compelling online gambling businesses to pay tax.

Surprisingly, the solution is simple: ignore the offshore casinos altogether, and start licensing, regulating, and taxing online casino operations in the United States, where consistent law enforcement would deter tax evasion, accounting tricks, or secret bank accounts. Yes, your favorite offshore gambling site would fold up over night, since it could never compete with major USA corporate casino operations that would flush billions into marketing and business development; but that’s the relatively small price we will all have to pay if online gambling ever becomes legal in the USA. Similarly, it’s no surprise that the token loss of the offshore gaming industry wouldn’t give lawmakers a second thought, either.

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