GBGA ‘Disappointed’ in ECJ’s Gibraltar-UK Single Entity Ruling

In recent days, the European Court of Justice’s Advocate General, Maciej Szpunar, has thrust a legal dagger into the hopes of Gibraltar-based betting firms to remain exempt from the United Kingdom’s tax crackdown on offshore-but-online betting firms.  Szpunar, writing an opinion in response to an action filed by the Gibraltar Betting and Gaming Association [GBGA], has determined that for tax purposes, the United Kingdom and Gibraltar are a ‘single entity,’ and thus the Gibraltar-based gaming operators are indeed bound both by the UK’s tax codes and last year’s Brexit edict.

gibraltarYesterday, the GBGA issued its own statement on its seeming loss in the ECJ.  Szpunar’s opinion is technically non-binding but is expected to be the basis for the ECJ to find in favor of the United Kingdom Gambling Commission and against the GBGA.  The expected ruling will also uphold the UKGC’s last round of amendments to its gambling tax and regulatory codes, known as the Gambling (Licensing and Advertising) Act 2014.

Peter Howitt, the GBGA’s CEO, offered the following: “We are naturally disappointed with the opinion of the Advocate General. We continue to believe that the gambling duty applied by the UK government to operators out of the jurisdiction, in circumstances where the customer may not be in the UK when they gamble or even a UK resident, is a disproportionate restriction on operators. We look forward to receiving the CJEU’s judgment on the issues.”

The GBGA also offered its own brief description of Advocate General Szpunar’s findings, as follows:

The UK and Gibraltar are to be considered as a single Member State for the purposes of the application of Article 56 of the Treaty on the Functioning of the European Union (the “TFEU”) which protects the free movement of services within the EU. The application of UK gambling duty to Gibraltar operators may therefore be considered a purely internal situation that does not engage Article 56.

Article 56 TFEU does not preclude the imposition of national measures with the features of the UK gambling duty. UK gambling duty is applied without discrimination and does not give rise to a restriction on the free movement of services. Article 56 TFEU may preclude a tax where it is charged at a prohibitive rate.

The issue as to whether the UK gambling duty is proportionate to reach its aims does not need to be decided but in any event is an issue for the English High Court to determine.

The Advocate General’s opinion is not binding on the Court of Justice of the European Union (“CJEU”) or on the English High Court. The next step in the proceedings is that the CJEU will issue its judgment on the issues which will then be binding on the English High Court.

(To read the somewhat longer EU-issued summary of Advocate General Szpunar’s opinion, click here.  Or, if you wish to commit legalese hara-kiri and read the full, original opinion in its entirety, click here.)

Gibraltar currently enjoys a special status in regards to the European Union, being outside the EU’s VAT (Value Added Tax) and Schengen area.  The UK protectorate has, for over a decade, positioned itself as a tax haven for online-gambling firms and sports-betting operators serving other EU countries.  Dozens of such firms, many of them formerly UK-based, relocated there in large part to to evade the tax bite levied by the UK’s Gambling Commission against land-based betting shops.

All that may change soon.  The tax advantage that firms gained by relocating to Gibraltar will disappear for the most part.  Szpunar’s opinion that Gibraltar is a “single entity” with regards to the UK may make many of these firms seek relocation elsewhere, such as Malta.  However, relocating there would offer no special advantages with regards to the taxed owed to the UK.  Also uncertain will be the whiplash effect as it hits Gibraltar’s economy, should some of its current-resident firms pull up stakes.

Many of the 19 firms currently members of the GBGA are traditional “British” betting giants, including William Hill, Ladbrokes Coral and others.  The GBGA’s membership has indeed dwindled in the face of the ongoing tax battle with the UK; the organization once claimed more than 30 gaming firms as members.

For customers, the upcoming changes might be transparent… or they might not.  The GBGA and its memeber firms have argued that the UK’s remote-tax levy will have the effect of making the Gibraltar-based betting firms less competitive, and that in turn might result in slightly worse odds (or higher juice) for the average punter.  We’ll have t ait and see how much of that is talk and threat and how much is reality.  The best firms find ways to adapt to changing situations, and it appears a wave of adapting is about to take place.