March 11, 2015

Rome police arrest managing director over €300 million of undeclared monies that were traced to Malta and the Isle of Man

The managing director of PokerStars, a leading online poker brand, has been accused of fraud and tax evasion of some €300 million by Rome’s finance police on Wednesday.

Investigators analysed the real value of transactions linked to Halfords Media Italy, the Italian branch of the group, and tracked down €300 million of undeclared revenues.

Halfords is a wholly-owned member of the Rational Group which offers online poker to players through two of the world’s leading poker brands, PokerStars and Full Tilt Poker.

In Malta, the Rational Group has several subsidiaries with beneficial ownerships also held in the Isle of Man. Rational was taken over by Canadian firm Amaya Gaming for $4.9 billion. Amaya also holds an Isle of Man subsidiary.

According to the finance police, Halfords hid its taxable income by decreasing the worth of services performed for its parent company Pokerstars and, by so doing, managed to move the taxable income produced in Italy to Malta, and then to the Isle of Man to benefit from a more favourable tax status. and operate worldwide under licenses from the Isle of Man and Malta governments, respectively.

The tax avoidance scheme is known as transfer pricing, and aims at minimising a company’s tax exposure by moving around revenues and profits to countries with favourable tax systems.

Transfer pricing is one of the most important issues in international tax.

Transfer pricing happens whenever two companies that are part of the same multinational group trade with each other: when a US-based subsidiary of Coca-Cola, for example, buys something from a French-based subsidiary of Coca-Cola. When the parties establish a price for the transaction, this is transfer pricing.

What makes transfer pricing illegal is if the price is manipulated so that costs are brought drastically down so that incur the least amount of tax possible.

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