Following the UK government's decision in 2010 to enquire into the situation of offshore gambling in which the UK sees no taxes or licensing fees there is a growing expectation that the situation is about to change. However industry experts are divided on how they see the government reacting to the situation.

It is inevitable that changes to the legislation are coming given that the publication of the results of the government's consultation process is believed to be coming anytime now. Many online operators have already accepted that the tax free honey moon period is about to draw to a close.

Online operators have a significant advantage over land based gaming sites in that by basing their operations offshore they make a significant tax saving and can heavily invest in sponsorship and advertising.

None of the offshore companies pay more than one percent tax compared with the 15 percent they would face on the British mainland and as many of the offshore havens are "white-listed" by the UK government, they have full access to the UK media and advertising.

The report is expected to recommend that, in line with other European countries, every offshore gaming company will have to obtain a British-specific licence on top of that which it already holds from an acceptable offshore gambling jurisdiction.

That has serious implications for both operators and jurisdictions, because there will almost inevitably be tax implications as well as 'secondary' licensing costs. There is an expectation that the rate could be put up to match the 15 percent or more which UK-based operators currently pay.

Chief executive of Rank Group, Ian Burke, agrees that change is coming: "Many European markets are moving to regulating and taxing online gaming and it's inevitable that the UK government will look at changing the offshore tax regime."

The effect of paying 15 percent rather than one percent could be highly significant - companies could be hit with tax bills amounting to millions, depending on how big their offshore operations are.

Burke warned: "Weaker companies would disappear as their business model would no longer be sustainable."

Major UK firms like Ladbrokes, Stan James, Victor Chandler, Betfair and William Hill have in the past all set up online gambling divisions in offshore 'white-listed' countries to avoid UK taxes however these decision maybe reversed in the near future as the benefits are eroded away which would have further benefits for the UK.

The UK online gaming sector is worth some GBP1.5 billion a year, and with some companies spending around 30 percent of total revenues on advertising, there is a lot at stake, the chief executive of trade group the Remote Gambling Association, Clive Hawkswood suggests.

"Some online casinos have a payout rate of about 97 percent so there is no room to withstand such a jump in tax.," said Hawkswood, opining that in order to survive companies may have to cut back dramatically on marketing, which has been lucrative for the UK media and sports industries”.

Many forms of online gaming such as Bingo pay up to 50% of their profits in affiliate fees, 15% in software licensing fees and then have to fund significant marketing campaigns in order to attract players to their brand. If you were to calculate the tax rate at 15% of gross profits the odds are that most online companies don’t actually see this amount themselves after they have paid out all the other fees. As such all gaming companies will have re-negotiate fees and percentages with all parties just to survive.

There is increasing number of industry insiders now suggesting that the UK government may take a somewhat different approach to offshore gambling operators with a toned down special tax concession which would see operators paying a form of GPT on revenues derived from activities in the UK and be a quick fix to the situation.

Land based operators are split on the issue of taxation on offshore online operators. Many of the big gaming companies such as Gala Coral and Rank that have significant land based operations also have some of the biggest offshore online operations and therefore they are hardly voicing support for changes to the legislation. The majority of the smaller land based operators are in full support of equal taxation levels in gaming with land based bingo tax being reduced from 20% to 15% in line with other forms of gaming. Given the state of the UK public finances there is one thing for certain at some point in the near future the UK government is going to be looking to make some money from online gaming operations based outside the UK.