Europe – A Common Market?
The rapid growth of the online gaming market has created a number of regulatory challenges.
European Member States, over time, have risen to such challenges by reviewing local rules governing
online gaming. The prime motive being to try to ensure that they operate a well regulated market with
licensed operators for the protection of the consumer from fraud and the prevention of gambling
The deregulation and relaxation of online gaming laws has required pan-European operators to obtain
licenses in a number of jurisdictions. Regulation tends to drive taxation and Member States issuing
licenses to operators seek to impose iGaming taxes on license holders to the extent that they accept
bets or generate gross win from customers within the respective Member State.
iGaming taxes are determined at National level
This has created numerous iGaming tax regimes across Europe as each Member State adopts an
individual position on the type of tax regime introduced, the rate(s) of tax and the method of
calculating tax liabilities. One of the reasons for this is that unlike VAT, which is an indirect tax governed
by principals laid down by the European Commission, gaming taxes are allowed to be determined at
National level with no parameters or thresholds.
The basic principal of iGaming taxes has also changed over recent years. Historically, online gaming
companies were simply taxed on the basis of the regime of the jurisdiction from which they operated.
Now it is the case that iGaming taxes are paid by reference to where the consumer is located.
Online gaming companies offering product across Europe are now faced with complex iGaming tax
reporting requirements due to the lack of harmonisation. Member States who have adopted iGaming
Tax regimes based on the location of the consumer include Italy, Spain, France, Denmark, Belgium, and
Malta. When you also take into account the draft legislation in place in the UK and Ireland currently
awaiting enactment and the proposed introduction of regulation and presumably taxation in Member
States such as the Czech Republic, the reporting requirements for companies will increase even more
as the situation becomes ever more complex.
Italy has seven different rates of iGaming tax
Some Member States have introduced regimes which are in principal fairly simple with one rate of tax
and method of calculation regardless of the product. For example, Denmark simply taxes operators at a
rate of 20% on gross gaming revenue. Spain has adopted a similar regime but has an iGaming tax rate
of 25% whilst the proposed legislation in the UK (at the time of writing) suggests operators would be
liable for tax at a rate of 15% of gross gaming revenues.
An example of a complex approach is Italy. It currently has seven rates of iGaming tax including
different rates for online casino games, sports betting, bingo, betting exchanges and skill games. In
addition, there are differences in the method of calculating tax liabilities with casino games being taxed
by reference to turnover and other games taxed based on gross win. Similarly France has adopted a
number of different rates dependent on product. However, the distinguishing factor here is that France
levies iGaming tax on stakes or bets placed rather than the usual method adopted by other Member
States where by iGaming tax is levied on gross gaming revenues or net stake receipts, i.e. bets taken
less winnings paid. This has resulted in a number of operators claiming that it is too expensive to enter
the French market and questions have been asked across industry as to whether the punitive iGaming
tax rates make jurisdictions such as France a viable commercial option.
If we consider the complexities of the above for operators licensed in multiple jurisdictions and add the
diverse regulatory reporting requirements laid down by each Member State it is fairly easy to
determine the significant amount of resource and cost faced by operators in this sector. Operators are
required not only to identify and report bets placed and gaming wins by reference to each jurisdiction,
but also to identify and calculate stakes and winnings on a product-by-product basis. If you take into
account the fact that certain jurisdictions may allow relief against tax for free bets on certain product
then the complexities, resource requirements and associated costs are significantly enhanced.
Reporting periods may also differ between Member States. This means that iGaming suppliers are
required to report on products, including stake, gross win, etc, for different periods in different
jurisdictions. The industry is therefore required to carry out a multitude of calculations to meet the
individual requirements in each territory.
Does excessive regulation and taxation create a black market?
It is difficult to identify and evaluate accurately any ‘black markets’ regardless of the industry sector.
Clearly in the world of online gaming such markets exist with foreign operators avoiding the cost of
regulation and taxation whilst continuing to offer product to local customers. The risk of a ‘black
market’ can be increased where regulation and taxation make the market commercially unviable for
well regulated companies forcing the consumer to look further afield. However, it is thought that
effective and proper regulation can mitigate the effect of a ‘black market’ as consumers seek reliable
and well regulated operators where they can be confident that their funds are protected. Clearly there
is a fine balance between the two which requires careful management.
Can the US learn from Europe?
As the US starts to deregulate, albeit slowly on a state-by-state basis, iGaming taxes will be introduced.
The US position is likely to be simpler on the basis that initial regulation will only allow poker, the
relaxing of rules for other product such as casino games and slots appear to remain some way off. As
there is only one product to tax, this will make reporting requirements for operators less complicated.
States may be wise to take note of industry’s comments in Europe, especially to the extent that well
regulated and licensed operators choose not to offer product in countries where punitive regulation
and iGaming tax rates make business commercially unviable. There will always be a demand for gaming
product and where consumers do not have a choice, ‘black markets’ could thrive.
States should therefore consider introducing rates of iGaming taxes which are economically viable and
encourage established well regulated companies to apply for licenses.
Can there be a ‘Common Market’ for iGaming in Europe?
The European Commission launched a Green Paper consultation in 2011. The purpose of the
consultation was to gather information on the regulation of the online gaming market across Member
States to determine whether the National regimes could continue to co-exist or whether intervention is
required at EU level. Following the publication of the responses to the consultation the Commission has
advised stake holders and interested parties that an expert working group will be established and a
stakeholder conference organised in 2013.
However, the key purposes of this latest Green Paper includes ensuring compliance of National Law
within EU legislation, the protection of minors and vulnerable groups, and the integrity of sports
betting. Taxation is not mentioned and as such it is unlikely that industry will see any uniformity of
iGaming taxes across Europe in the near future.