EU Court Denies Gibraltar’s Request For Gambling Tax Exemption

The European Union’s top court recently ruled against the efforts of Gibraltar-licensed online gambling operators seeking to be exempted from paying taxes on gambling revenues.

The Point Of Consumption Tax

The United Kingdom implemented their online gambling point of consumption tax (POCT) in December of 2014, but the Gibraltar Betting and Gaming Association (GBGA) began challenging the law preemptively some months prior.

The amendment to the UK Finance Act requires all UK-facing gambling operators to apply for a license and pay a 15% tax on online revenue earned from players in the UK.

The GBGA believes that the POCT violates Article 56 of the Treaty of the Functioning of the European Union, which grants member states the right to freely move goods and services. The trade association claims that the requirement is more about increasing UK tax revenues than protecting consumers, and the POCT also results in double taxation for Gibraltar-licensed operators.

The Court Decision

On Tuesday, the Court of Justice for the European Union (CJEU) issued an unfavorable judgment regarding the case. The CJEU ultimately found that the tax regime is lawful and in no violation of the “restrictions to provide services” article of the Treaty of the Functioning of the EU.

The court also found it important to declare the status of Gibraltar in relation to the United Kingdom and the European Union, finding that ‘the provision of services by operators established in Gibraltar to persons established in the UK constitutes a situation confined in all respects within a single member state’.

Audrey Ferrie, a gambling law expert on legal betting sites at Pinsent Masons, believes that the ruling is an indication that GBGA’s three-year legal battle could be coming to an end. She was also able to shed light on the ruling and describe where certain arguments fell short.

"The CJEU's ruling acknowledged that Gibraltar is not part of the UK, but found that Gibraltar should not be considered to be an EU member state in its own right," Ferrie said.

"Rather, it said its ties to Britain in EU treaties mean that, for EU law purposes, services provided by Gibraltar-based gambling operators to UK-based consumers should be considered as being delivered within the same jurisdiction. This cuts across the GGBA's complaint about the alleged obstacles to cross-border trade caused by the new remote gambling tax system in the UK."

What’s Next For Gibraltar

The future of Gibraltar has been a major topic of discussion as Britain prepares to leave the EU. Stakeholders have been concerned with the post-Brexit viability of Gibraltar, and the current ruling does not bode well for the territory’s goal of attaining a special status.

In addition, most online gaming operators have sought out offices in Gibraltar due to lower taxation. The 15% tax is one issue, but should Gibraltar be given to Spain in Brexit negotiations this tax could be even higher. This would undoubtedly cause online operators to move elsewhere.

Paddy Power Betfair already announced that they will be shutting down their Gibraltar office, though this was justified as a result of their merger and not Brexit. Bet365.com, however, still remains one of the largest online gaming sites in the world and currently has no plans of exiting the market.

Online gambling accounts for 25% of Gibraltar’s GDP, which is why maintaining the industry is top priority for the territory. It is still unclear how British EU exit talks will pan out, but the government still remains positive. In a statement to the press, the Government of Gibraltar made the following statement:

“Whatever Brexit may produce for Gibraltar, the government will adapt its licensing and regulatory arrangements to ensure we remain the premier remote gambling jurisdiction.”