The Hong Kong Jockey Club says it may be forced to set up an offshore satellite wagering operation to circumvent double taxation issues if it is to take part in overseas betting pools, reports the Racing Post in Hong Kong. It says: Chief executive Winfried Engelbrecht-Bresges dropped the bombshell as the club prepares for the new season, which starts next Sunday. "I think we have to forget about commingling beginning during the current season - but we are also getting to the point where it'

The Hong Kong Jockey Club says it may be forced to set up an offshore satellite wagering operation to circumvent double taxation issues if it is to take part in overseas betting pools, reports the Racing Post in Hong Kong.

It says: Chief executive Winfried Engelbrecht-Bresges dropped the bombshell as the club prepares for the new season, which starts next Sunday.

"I think we have to forget about commingling beginning during the current season - but we are also getting to the point where it's now or never," he said. "I really hope the government will compromise on the taxation obstacles so we will be commingling by the start of the 2012-13 season."

Commingling is a procedure by which bets placed on one country's racing with an operator in another country are funnelled into the "home" pool where the race is staged.

"We don't have any plan to go offshore at this stage, but it is something we would have to consider if we do not get action soon. We have huge illegal exchanges operating just outside our door, and with other countries banding together in a commingling hub to take legal bets between different nations, the external forces on all sides are building up and we are going to be shut out. We don't live in a vacuum - ultimately, these operations can endanger our business right here."

Legal betting on Hong Kong racing exists in a number of foreign countries, but bets go into small local pools and the Jockey Club receives a 3 per cent fee. The club says these pools add up to HK$3 billion to HK$4 billion a year, and believes that would double if wagers went into Hong Kong's more stable "home" pools. If bets from Canada, for instance, are commingled into the Hong Kong pool, the Jockey Club and the foreign operator taking the bets share earnings from the bet and each deals with its government obligations from its own share.

The sticking point is the Jockey Club cut is less than it would receive from a bet sourced here, but the government is not prepared to take less than its usual cut. That renders the process commercially unviable for the foreign operator and the Jockey Club.

Important racing countries such as Australia, South Africa and France have formed relationships around the world, setting the prices and framework for the process.

Earlier this year, Australia's Tabcorp and Phumelela, of South Africa, agreed to set up a global hub, overcoming technological barriers to exchanging bets between different jurisdictions, but also based in a tax haven to enable aggressive pricing. And this development has the Jockey Club worried.

"If we are not part of commingling, then we are rivals and there is a danger the hub will be big enough to start diverting bets from our pools by offering attractive deals to some of our very price-sensitive major customers," Engelbrecht-Bresges said. "That's when commingling will cease to be an offshore issue, seemingly unconnected to our HK$80 billion Hong Kong wagering business. Then we could find part of that turnover heading offshore to the hub. Our position as a world leader is not in danger now, but it may be in a few years and that would endanger our contributions to the community through taxation and charity."

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