PokerStars has come under fire once again, but this time by Italian authorities. On Wednesday, the CEO of a PokerStars Italy market company has been charged with tax evasion following an investigation that dates back several years.
According to a story released by Today.It, Halfords Media Italy S.r.l. is being accused of failing to declare profits of nearly €300 million. The accusations stem from an investigation dubbed “All-In.” According to the group, Halfords engaged in “transfer pricing” in order to shift revenues to the Isle of Man where tax rates are lower.
What is Transfer Pricing?
The matter under investigation by Italian authorities is whether Halfords used transfer pricing to reduce their tax burden. Transfer pricing is act of setting the price for goods or services transferred between entities within a company. For example, if programmers for PokerStars.IT were to perform work for their offices in Isle of Man, the cost of their services would be billed and used as an expense for the company.
This method is a common business practice used to track costs but the problem arises when companies use transfer pricing to try and unnaturally lower their tax burden. An example of his would be if PokerStars.IT were charging €500 per hour when the average rate for the same work in Italy was €200 per hour. This would allow PokerStars.IT to claim higher expenses, thus reducing their tax burden. Most companies use ‘arm’s length’ or market based pricing to avoid such problems.
PokerStars Cooperating With Authorities
PokerStars was quick to issue a response on the Italian charges. Eric Hollreiser, Head of Communications with PokerStars, released the following statement on the matter:
“PokerStars has been working with Italian tax authorities since they launched an audit several years ago. We have operated in compliance with the applicable local tax regulations and have paid €120 million in local taxes over the period covered by the audit.
Like many other global e-commerce companies, we vigorously dispute the stance of the tax authority regarding local establishment. The audit is ongoing and we hope to resolve the issue in our favour 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 These Charges Impact PokerStars’ Attempts to Return to America
The big question following these charges is how they will affect efforts for the company to return to the United States. Charges of tax evasion, even if done by an associated company, do not reflect well upon PokerStars at this point.
PokerStars is currently attempting to return to the U.S. market through New Jersey but their application with the Division of Gaming Enforcement has been stalled. Some believe that Governor Chris Christie is holding up proceedings but one has to wonder how these charges will impact their decision.
PokerStars is also one of the hotly contested topics in California as the state muddles through online poker legislation. The coalition of Tribes led by the Pechanga have long spoken out in opposition of the company and this will likely just add fuel to their fire that the company is unfit to return despite operating under new ownership.
Granted, one can argue that this investigation has been ongoing and began well before Amaya purchased the company, thus absolving them of any responsibility. Regardless, the company cannot afford this black eye at this time.