Remote gambling tax proposals challenged at High Court

Out-Law News | 20 Oct 2014 | 3:59 pm | 3 min. read

UPDATED: The UK government's plans to introduce a 15% levy on remote gaming and betting on a 'point of consumption' basis later this year has been challenged at the High Court in London.

The Gibraltar Betting and Gaming Association (GBGA) said the tax plans breach EU law and would lead to consumer detriment. From 1 December 2014 remote betting and gaming activities carried out by a 'UK person' is to be subject to a 15% tax wherever the operator is located. Those measures are outlined in a new Finance Act that received Royal Assent in July.

"[The] new tax regime breaches Article 56 of the Treaty on the Functioning of the European Union (TFEU) in that it amounts to a restriction on the free movement of services," the GBGA said in its application for a judicial review of the government's Finance Act measures. "That restriction cannot be justified under Article 52 TFEU, since the new tax regime has been introduced in pursuit of an illegitimate aim."

"The main aim of the new tax regime is to discourage remote gambling operators from moving to foreign jurisdictions and offering their services to UK consumers from those jurisdictions. This aim is contrary to the very essence of the EU rights of freedom of establishment and freedom to provide services guaranteed by Article 56 TFEU," it said.

"Secondly, the new tax regime is discriminatory since it has the consequence of imposing differential burdens without justification on remote gambling operators providing services within the European Union on the basis of the member state in which they are located and/or the particular service(s) they provide," the GBGA has argued.

The GBGA said that the new tax plans will mean gambling operators based outside the UK could pay a local tax and a UK tax on the same gambling activity. It said the tax plans also introduce favourable conditions for UK-based gambling operators, spread betting service providers and betting exchanges compared to overseas operators and will therefore restrict overseas operators "in the services they can provide" and could cause some of those businesses to "leave the UK market".

It also said the new tax regime would encourage the "black market" to flourish in the UK, with a knock-on consequence for consumer protection.

If compliant foreign operators have to raise their prices "it is inevitable" that consumers will "move to companies with no regulation and lower overheads", increasing the risk of "fraud, non-payment and abuse", the GBGA said in a statement.

A spokesperson for HM Revenue & Customs (HMRC) said: “We will robustly defend against the challenge. We are studying the grounds, but are confident the reforms are lawful, proportionate and non-discriminatory.” 

The GBGA said it had applied for a judicial review of the Treasury's tax plans after reviewing a judgment by the High Court in a previous unsuccessful challenge it brought against new remote gambling regulations which come into force next month. The reasoning of Mr Justice Green in that case had given it encouragement to launch a legal challenge against the remote gambling tax plans, it said.

The new remote gambling tax rules were kept separate from the remote gambling regulation changes. However, gambling operators that do not adhere to the new tax regime do risk having their remote gambling licence revoked by the Gambling Commission.

In his judgment, Mr Justice Green said that previous case law had established that founding principles of EU law do not allow for "measures restricting the freedom to provide services between member states … [to] be justified on purely economic grounds". The judge said that "the precise boundaries of what is and what is not an economic justification are not writ in stone" but that "a restriction designed to raise tax would be an economic objective and, as such, inadmissible as a justification".

Mr Justice Green said that some of the identified objectives of the new remote gambling regulatory regime, outlined in a government impact assessment document, were "economic in nature". He said those economic factors were "irrelevant" to the debate on whether the planned new regulatory regime was proportionate and instead said that the regulatory reforms to remote gambling could only be justified by reference to "legitimate objectives of consumer protection and/or the preservation of public order".

The judge concluded that the government's regulatory reforms, whilst not faultless, were nevertheless proportionate to the aims being pursued and therefore rejected the GBGA's legal challenge.

"When Mr Justice Green rejected the GBGA’s challenge that the new regime would encourage illicit trade, he said that this argument, which he refers to as based upon assumptions which were far from self-evident and economically counter-intuitive, would need a supporting quantitative assessment of the extent of the costs burden upon operators and an explanation as to how those costs would be addressed by operators and with what consequences for each operator and the market as a whole, if they 'were to acquire ’forensic legs’'," gambling law expert Susan Biddle of Pinsent Masons, the law firm behind Out-Law.com, said.

"The GBGA says their new legal challenge will again be based in part on the potential to encourage the black market and it may be that it views Mr Justice Green's comments in his previous case as encouragement for this case if they can produce the appropriate evidence," she said.

Editor’s note 14/10/14:
this story has been updated to include the statement issued by HMRC.