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Italian Tax Officials Accuse PokerStars.it of €300 Tax Fraud, Audit Ongoing

Italy’s tax police have filed a complaint against the Italian subsidiary of PokerStars, Halfords Media Italia S.r.l., accusing the company of several years worth of tax avoidance and fraud totaling approximately €300 million.

pokerstars-it-logoThe complete announcement made by Italy’s Guardia di Finanza (below, translated to English), accuses the marketing and parent company of years of illicit activity in transfer pricing, involving the transfer of services within a single multinational entity, but involving more than one nation.  According to the Guardia di Finanza, Halfords, on behalf of PokerStars.it, intentionally suppressed certain revenue figures to minimize the tax levy due the Italian government for the operation of the Pokerstars.it site.

The Italian tax agency has publicly estimated the alleged tax shortfall at €300 million, covering the years 2009 to 2014, largely within the era when PokerStars was a family-operated concern under the control of Isai and Mark Scheinberg.

The statement by the Guardia di Finanza names no individuals, but accuses the “sole director of the [Halfords] group as bearing primary financial responsibility, and Italy has filed tax-fraud charges against that individual.  PokerStars has not, to date, confirmed which board member and director out of seven listed in corporate disclosures is the person stated as charged by the Italian agency.

Here is the translated-to-English announcement as made today by Italy’s Guardia di Finanza:

A maxi tax evasion was discovered by the yellow flame of the Provincial Command of Rome as part of the operation called “ALL – IN”, which allowed to bring back to Italy the real market value of the transactions between the company of an international group recovering the higher undeclared income to Italian tax authorities.

At the center of the investigation is over a group that, through the establishment of two national companies, manages, in fact, the game of poker on line in Italy.

Thanks examination of copious documentation accounting, computerized analysis of flows and monitoring carried out at the service providers of the group, the military of the Group Rome reconstructed by the company of the Italian group, the “HMISrl”, not revenues declared for more than 300 million euro.

Paid by the “H.” – Formally constituted for providing ancillary services to the performance of the virtual game in Italy – are, in fact, emerged numerous evidence they have, however, shown that the actual role was to carry out, on behalf of the “P.” – On an ongoing basis and throughout the country – and functional activities essential to the “core business” of the group.

The tax investigation – centered on the analysis of intercompany transactions made between 2009 and 2014, by the multinational Isle of Man with the Italian subsidiary – showed that the “H.” has willfully eroded their tax base, decreasing the value of the services rendered to the group “P”, so as to shift the taxation of income produced in Italy to Malta and the Isle of Man which, in the field of virtual game , reserve tax treatment particularly facilitated.

The technique used is that of “transfer pricing”, to minimize the overall tax burden by shifting revenues where taxation is cheaper (eg. Malta, Isle of Man etc.) And costs where, however, the rates of ‘sets are higher (Italy etc.).

The implementation of complex criminal design was made possible thanks to the top-position assumed in all subsidiaries by the sole director of the group – now sued for tax evasion -, functional to be able to determine and influence the managerial autonomy in view of its exclusive personal advantage.

Within hours of the announcement of the charges by the Italian tax agency, PokerStars issued a brief statement strongly disputing the charges.  According to PokerStars Head of Corporate Communications, Eric Hollreiser:

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.

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