Author: James Scicluna

The shift from prevalently .com to .country regulation of remote gaming and betting (“remote gaming”) which occurred over the past five years or so in Europe brought with it higher remote gaming taxes than the remote gaming industry had been used to in the first ten years of its development.  Business models had to change, industry consolidation accelerated and taxation is now one of the foremost considerations for a remote gaming operator wishing to obtain a .country remote gaming licence.

This article considers some of the tax issues which remote gaming operators should consider when looking at new .countryregulated markets and also at a state aid case currently before the European Court of Justice which could potentially be a game changer for the gambling industry in Europe.

Variety is a compliance nightmare

Readers are likely to be familiar with the fact that remote gaming taxes differ greatly from one jurisdiction to another in Europe, both in terms of percentage and bases of taxation.

For example, the UK taxes remote gaming at 15% of gross gaming revenue which, for the avoidance of doubt, means the difference between the sum of stakes and other payments (e.g. rake) received to participate in remote gaming less amounts paid out as winnings.  It also taxes remote betting at 15% of gross profits, that is, stakes less pay-out.  Denmark imposes remote gaming tax on a similar basis but at different rates.  The prevalent rate of remote gaming tax in Denmark is of 20% of gross gaming revenue.   Spain uses turnover as a basis of taxation for pool betting and contests with rates ranging from 15% to 22% and gross gaming revenue at percentages ranging from 20% to 25% for fixed odds betting, casino and contests. However, France taxes heavily on stakes when it comes to sports betting and horse race betting.  Malta also taxes sports betting on stakes, although at a much more reasonable 0.5% capped at 466,000 Euro rather than the 7.5% levied on all bets placed in France.

In addition to having to deal with a different remote gaming tax per licence jurisdiction and increasingly with remote gaming taxes even in jurisdiction where they do not have a licence, remote gaming operators need to come to terms with the fact that every single jurisdiction in Europe has different tax filing formalities including different deadlines and different paper work, not to mention different languages, different work practices in that state’s public service and different consequences for getting it wrong.  It is therefore fundamental for remote gaming operators to ensure that they have a combination of technically sound and practical local advisors who speak good English as well as, either in-house capacity to deal with local languages and practices at a legal, tax and accounting level, or an external firm of advisors which can act as a buffer, a sieve or a funnel in between them.

Gaming tax: double taxation

The introduction of different taxes on remote gaming across European jurisdictions has given rise to a situation where there is likely to be double taxation.  It is therefore pertinent for remote gaming operators to consider whether relief for double taxation can be obtained in respect of gaming tax.

Although double tax treaties (DTTs) do not normally specifically deal with relief for double taxation in respect of gaming tax, it may be possible for operators to formulate an argument to claim that references in a DTT to “taxes on income” are broad enough  to cover gaming taxes.

Whether that is the case will depend, to a significant extent, on the definition of “taxes on income” under the laws of the respective jurisdictions in which the remote gaming operator is paying gaming tax.

Whether or not relief for double taxation in respect of gaming taxes is available also normally depends on whether it is the same person paying taxes in both states (including the one in which relief is being sought).  In other words, there must normally be “juridical” double taxation for relief to be available.

Juridical double taxation is the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods[1].  Relief will not normally be available, even in principle, where it is two separate entities (even though within the same group of companies) which pay gaming taxes in two separate states.

I should note that having recognised the changing reality of the remote gaming world, Malta does not impose Maltese gaming taxes on the activities of an entity licensed in another European Economic Area (EU plus Iceland, Lichtenstein and Norway) (“EEA”) state, even though the entity holding that licence is established in and operating from Malta.

However, Malta seems to be an exception in this regard.  For example UK gaming and betting taxes are likely to apply to an entity established in and operating out of the UK even in respect of those activities carried out by that entity under a licence from another EEA state. In such a case, if that same entity is also paying gaming tax in the other EEA state, the double tax treaty between the UK and that other state should be looked at in order to determine whether double tax relief is possible.

Not all European states will recognise an obligation to grant relief in respect of juridical double taxation when it comes to gaming taxes, but it is certainly worth a remote gaming operator’s while investigating whether a corporate and regulatory structure can be used which would allow it to benefit from tax relief.

VAT & the 2015 changes to EU VAT rules

EU law in relation to VAT on gambling services provides that such services are to be “exempt without credit”. This means that a licensed gaming operator does not need to charge VAT to its players (“exempt”) and does not recover VAT paid on its purchases (“without credit”).

Operators should be aware of the imminent changes to the ‘place of supply rules’ under EU VAT legislation which will affect the VAT treatment of the supply of gaming services to players.  Place of supply rules are fundamental in determining whether a transaction falls within the scope of VAT of a particular EU jurisdiction, and ultimately the member state in which VAT is due and the particular rate at which it is due.

New EU legislation approved by EU member state finance ministers in February 2008 will come into force on 1January 2015, introducing a change in place of supply rules for providers of electronically supplied services. Currently the place of supply where operator and customer are both in the EU is the place of establishment of the operator. In 2015 this will change to the place of consumption; where the customer is located.

EU states will be able to exercise discretion as to whether betting, lotteries and other forms of gambling consumed on their territory, remain VAT exempt. Therefore, from 2015, in order for a remote gaming company to be able to determine whether VAT is chargeable in the member state of consumption or not, it must first determine where the customer is located. If that customer resides in a jurisdiction which decides that gambling is no longer VAT exempt, an operator taking business from that jurisdiction will have to collect VAT from its players and pay VAT there, irrespective of where, in the EU, it is.

This is a matter which operators would do well to be up to speed with.

A landmark judgement in the making

In December 2010, following complaints made in respect of the Danish Gaming Duties Act (“DGDA”) by the Danish Amusement Machine Industry Association and the Royal Scandinavian Casino respectively, the European Commission (“Commission”) opened a formal investigation in respect of the measure which provided that different taxes applied to remote gaming operations than did to land-based gambling.

Denmark argued that the tax rate for remote gaming reflected the necessary balance between, on the one hand, the need to comply with the objectives of Danish gambling legislation to protect players, and, on the other hand, competition from online operators established in other countries with lower tax rates.


The Commission argued that given the nature of the games offered online and in land-based premises, the social experience provided by the activity of gaming in both platforms, and the socioeconomic profiles of the consumers, it had doubts as to whether the differences between online and land-based gaming were sufficient to consider them as not being comparable in law and in fact for the purposes of their tax treatment under the DGDA.

The Commission took the view that the DGDA provided a tax advantage conferred through the use of State resource: a state aid which is in principle unlawful under the Treaty on the Functioning of the European Union (“TFEU”). Nevertheless, the Commission considered that it fell within an exception to the rule which provides that, the following may be considered to be compatible with the internal market:

(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.[2]

Following the Commission’s decision, the Royal Scandinavian Casino appealed to the Court of Justice of the European Union (“CJEU”) claiming that this exception was incorrectly relied on by the Commission and that the state aid could not be justified.

This case could be as important to the remote gaming industry asSchindler[3], which was decided by the CJEU in 1994. Had the CJEU decided in Schindler that ‘gaming’ is not a ‘service’ remote gaming in Europe might have never developed in the way it did.

A decision by the CJEU to uphold Royal Scandinavian Casino’s appeal could set the scene for a complete overhaul of gaming taxes in Europe: An overhaul which might very well see an alignment of state gaming-taxes.  Currently most EU states levy lower taxes on remote gaming than they do on land-based gaming, but there is also significant tax differentiation between different land-based products.  Tax differentiation across products and/or communication channels is more the norm than the exception.

If the CJEU does not uphold the right of states to differentiate in this manner, the remote gaming industry as we know it could become a thing of the past.  The low margin business model which remote gaming operators work with results from the high level of competition online and on other electronic media. On the internet, consumers’ purchasing decisions are not limited by location or time and consumers are aware of this power[4].

It remains to be seen whether the CJEU will be persuaded by Denmark’s argument, supported by the remote gaming industry that, whereas this is so, there is a very low substitution level between the remote and the traditional land-based sector meaning that a difference in taxation should not adversely affect competition between online and land-based gaming operators.

[1] Klaus Vogel on Double Tax Conventions, Kluwer Law International (1997), p. 2

[2] Article 107(3)(c) TFEU

[3] Case C-275/92, Her Majesty’s Customs and Excise vs Gerhart Schindler and Jörg Schindler, [1994] ECR I-1039

[4] Commission Staff Working Document, Of Knowledge Enhancing Aspects of Consumer Empowerment, SWD(2012) 235 final,