Some red flags are more alarming than others. And when they are raised in the polite, understated tones of Betsson CEO Ulrik Bengtsson, well, it is perhaps all too easy to underestimate them.

But make no mistake: when the head of a company that employs 900 people and which generates what he estimated to be, one per cent of Malta’s GDP, says that Malta and the Malta Gaming Authority should be a “little bit worried”, perhaps we should be very worried.

The issue is not a new one. The concept of freedom of movement of services has simply been ignored in various member states which are determined that the gaming monopolies and local companies should not lose market share – often under the guise of protecting the public from the negative aspects of gaming.

Many member states are creating barriers by insisting on local licences – and Betsson has taken these up in Denmark, the UK, Italy, Estonia, Ireland and Latvia. But it has decided not to do so in France, Bulgaria and Spain so players from these countries are blocked. End users from Portugal are also blocked.

“This is the big issue right now. Number one on the agenda is what is going on in the EU, the power of the EU and how that power seems to be diminishing day by day.

“Back in the day when we first came here, the EU very much supported the idea of free movement of goods and services, one of the fundamental pillars of the EU. Now you increasingly see member states going blatantly against the idea of the EU, creating hurdles for European companies to operate within the EU. And no one does anything about it.

“It is very alarming for the EU, for the industry and for Malta. Let me give you an example. In Lithuania, they have blatantly breached EU law by requiring physical establishments in order to operate in that country.

“Portugal claims a jurisdiction over the internet, rather than just its own borders. And Germany has been reprimanded by the EU but still has a legislation that is clearly not in line with EU law. But no one really seems to do anything about this. It has become very alarming,” he said, deceptively calmly.

Having to get local licences clearly reduces the impact of having a Maltese licence which should have given automatic access to all the member states. Couple this with the challenges to Malta’s imputed tax system, and it becomes less and less obvious why gaming companies would come to Malta – and why established ones would stay.

What we have a problem with is when states build barriers against the free flow of services in the EU

“We know that Malta has been challenged on the income tax issue so the question is: how well can Malta defend its position over the coming 18 months, both when it comes to income tax set up and when it comes to making sure that the EU enforces the free flow of goods and services, because if that falls down, Malta would lose its whole reason for being.

“Member states always had a prerogative over tax. We have no problems with that and we accept that our revenues should be taxed locally. But what we do have a problem with is when states build barriers against the free flow of services in the EU. That is clearly problematic. And I think it is very sad to see the EU’s fundamental principles being challenged.”

Mr Bengtsson said during an interview with The Business Observer two years ago that the competitive tax and licence regimes had brought the company here but that these were – at least in 2014 – only two of many factors that kept it here.

The question is therefore whether Malta would still be attractive if it lost the imputed tax system. He paused very briefly.

“At the risk of tripping myself up, obviously we wanted to avail of the favourable income tax position in Malta. Do we realise that that the rate is going to go up over time? Yes, we think it is going to happen.

“So will we still be in Malta after that? Yes, depending on where it ends up. Will it end up at 30 per cent? Probably not. If it did, we would probably just as well move everything to Sweden or the UK, where we might have an even lower income tax. There are local licences in Sweden and we can run our businesses from there.

“It is all about the scale. If there are small to medium increases on income tax we would still be here. We have 900 people here, doing everything from customer service to very advanced digital development, and it would be virtually impossible for us to move all those people from here. At least within a reasonable amount of time,” he pointed out.

The implication that Malta should be fighting for free movement of services is all very well and good. But the open secret is that many of these deals in the EU end up as compromises, making concessions on one side to win on others. What could Malta offer as compensation? He shrugged.

“It is really not up to me to say. But you are one of the biggest beneficiaries of the EU system and once the bigger member states start pulling in the reins, you have a lot to lose. Having said that, Malta has a great history of reinventing itself,” he said, a polite reminder of the possible consequences.

Mr Bengtsson is now the president and CEO of Betsson Ab, the Swedish parent company, taking over from his predecessor who left last year to take up another job. He initially turned down the offer to replace him as his family did not want to move back to Sweden. But the parent company eventually came up with a structure which allows him to spend just 10 per cent of his time there, dealing with investor relations of the listed company.

He has taken over at an auspicious time: it was a record year for Betsson, which saw its share price increase by almost 60 per cent in 2015.

Its 23 per cent revenue growth came mostly from additional players in its core markets, but it also grew “quite nicely” outside Western Europe. This is partly due to the acquisition of Europe-Bet in Tbilisi, Georgia.

“The business in Georgia is operated under our local Georgian licence. The Georgian authorities, like many other countries, allow local licence holders to provide some of their gambling services from Malta. In Malta, the MGA vetted us and the Georgian licence and decided to put it on the so-called white list. And this enabled us to provide B2B services to our Georgia-licensed company.

“I must say that for the Malta Gaming Authority and for the Malta licence, the acquisition has put it very much to the test. How are we as Malta and the community going to look at territories outside the EU? It has not really been a big question until now. But it is going to be on the agenda, forced there for everyone to consider. The MGA has sorted it out quite nicely and we are now able to operate under a Malta licence in Georgia. But this is going to be an ongoing discussion for other countries so we have to determine how Malta is going to look at that,” he pointed out.

The successful acquisition clearly opens Betsson’s horizons, which has already said that it will continue to actively look for acquisition opportunities.

“Europe-bet has a lot of potential to grow. You have a lot of exciting neighbours in that region which are potentially markets, Armenia and Azerbaijan being the obvious one as they are so close. So there could be more opportunities there.”

The clampdown on tax avoidance and the non-tariff barriers are not the only clouds on the horizon. Gaming companies are also awaiting interpretation on the new VAT rules that apply since January 2015. A handful of European countries have local legislation which could possibly levy VAT on certain services provided by Betsson.

“The EU has not been able to formulate a common position properly. What is the underlying guidance on VAT on digital services? Are the digital services subject to VAT or not? With the lack of clarity there are different interpretations made by the countries on how to apply VAT. It is another example of where there is not a cohesive policy across the union,” he said.

Human resources are also a key factor in Betsson’s presence in Malta – and he calculates that the company pays €35 million in salaries in Malta – with employee taxes and contributions amounting to €20 million. Add to that the corporate tax paid on profits, and he estimates that the direct contribution from Betsson to the Maltese economy is one per cent of GDP.

Not to mention the indirect impact of what the foreign majority of those 900 employees spend on the island, from rent on accommodation to flights home and restaurants.

The gaming sector has grown so rapidly that skills could not keep up and Betsson decided to stop complaining and do something about it. It has now set up a data science programme at University, linked to internships with a promise of employment for five students at the end of each year.

“It was very well received and we had 35 very keen people waiting at reception for interviews for the first internships. Does it cover all our needs? No! But it is a step in the right direction. It has worked surprisingly well.

“I still have this idea that you need a more advanced computer science education in Malta. And this is beyond what we can do to help. You need to invest in computer science just as you did with doctors and lawyers.

“We have spoken to the Prime Minister’s office and have offered to help in any way that we can. There is a lot of potential and not just for the gaming sector. It is good for the country in general to create digital skills as these will be applicable to other industries as well, including banking. That is more of a national economic discussion than a gaming discussion,” he said.

Betsson: 2015 in figures

59%
Increase in pre-tax profit since 2011

23%
Increase in revenue

35%
Increase in active customers

27%
Return on equity

9
Registered customers – in millions

90%
Gaming which is still offline

8
Local licences

42
Nationalities among employees