Rise Of E-Gaming Changes Taxation Policies For Gambling Industry

By Global Tax Weekly

Companies in the remote gambling sector aren’t exactly having a happy time of it, as they face an increasingly dangerous tax and regulatory minefield in the jurisdictions in which they operate, especially in Europe. Two recent cases highlight how the European market has become something of a lottery for the remote gambling sector. The first was in Germany, where a recent court decision appeared to all but slam the door on e-gaming and gambling firms, but, with this ruling apparently contradicting earlier jurisprudence, including from the EU courts, this situation is far from clear. The other was in Belgium, where remote gambling firms won a major tax victory after legislation that imposed value-added tax on the supply of e-gaming services, while leaving the legacy gambling sector exempt from VAT, was annulled.

Culturally, some countries, including in Europe, have been hostile to the gambling industry, and governments have seen it as their role to protect vulnerable citizens against the scourge of gambling addiction. However, just as it has done with most other areas of life, the borderless world of the internet has come along and completely changed the game. And governments have reasoned that it is probably better to open up to the gambling industry and keep a firm eye on it through regulation, rather than turn a blind eye to those gambling and gaming on their home computers.

Despite these contradictory developments, we are nevertheless witnessing a trend of “liberalization” in the gambling markets, as legislatures pass laws allowing foreign providers to compete with domestic counterparts and lifting bans on e-gaming. However, as we know, the word “liberal” has become increasingly flexible in its meaning. And in the context of the gambling industry, “liberalization” usually means “regulation.” And for many governments, there is to be no regulation without taxation.

The price it seems for access to the internet connections of country’s citizenry is tax. And the industry is often heard to bemoan how these taxes often make their businesses uneconomic. Poland, for example, introduced a 12 percent tax on the turnover (not profit) of sports betting operations as part of a new regulatory framework, then sat by and watched as an exodus of bookmakers became a stampede. With rumblings of discontent in the industry over the Dutch Government’s new gambling regulations, which will impose a 29 percent tax on gross gaming revenue in July, I’m willing to wager that gambling firms won’t exactly be falling over themselves to enter the Dutch market.

Nevertheless, for the remote gambling firms, the penalties for defying regulations or prohibitions on gambling can be severe in many jurisdictions, not to mention the reputational damage a company may suffer from having its name dragged through the mud by the authorities. Anybody who’s been to Las Vegas knows that the house never loses. Perhaps the world of tax is the exception.

For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look

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