Europe – A Single Market?
The introduction of new VAT rules for companies within the EU is one of the most significant taxation
changes the industry has faced. Effective 1 January 2015, the rules will change the place of supply, and
the country where VAT is paid, of B2C electronically supplied services which include eGaming.
Whilst there has already been a fair amount of media commentary to date, I am not sure that all angles
have been fully explored. For example, where operators are based outside of the EU, VAT liabilities may
already have accrued and operators may have to repay VAT dating back to 2010.
The risks and costs associated with this are significant and it is clear that further detailed and
structured analysis is required to ensure that unnecessary tax exposures are mitigated.
2015 EU VAT rule changes
As if the UK gaming tax reforms were not enough to contend with, eGaming operators face further
issues with the implementation of new EU VAT regulations which take effect 1 January 2015. The new
rules relate to where electronically supplied services, including eGaming, are taxed for VAT purposes.
This will become where the consumer is located and suppliers will need to determine their liability to
account for VAT across all EU Member States where they have customers.
It should be noted that where social gaming is offered, related income received from customers across
Europe is likely to be subject to VAT as this typically falls outside the VAT exemption.
Is it not the case that eGaming is exempt from VAT?
This is the starting point under EU VAT legislation. However, each Member State can introduce
limitations and conditions to the exemption within their respective national VAT rules. Issues arise
where countries VAT legislation is outdated and does not consider eGaming.
Arguably there are up to 10 Member States where the situation should be reviewed. Major markets
include Germany and Ireland where the VAT exemption is seemingly applied only to the extent that a
local gaming tax is payable. Other Member States where it would be prudent for eGaming operators to
review the position include Finland, Greece, Croatia, Luxembourg, Poland and Romania.
This represents a multi-million Euro cost to industry
It has been reported that in the event that VAT is ultimately chargeable in major markets such as
Germany and Ireland the cost to industry could run into millions of Euros. Such statements appear to
have been calculated by reference to the position going forward. Media reports to date seem to have
missed a critical point for operators located outside of the EU VAT boundaries including Gibraltar and
For operators outside the EU the position could be significantly worse
The VAT regulations taking effect 1 January 2015 relate to supplies made by EU operators. The critical
point is that for operators located outside of the EU, in jurisdictions such as Gibraltar, Alderney and
further afield, the EU VAT rules actually changed in 2010.
Article 58, Directive 2006/112/EC was amended with effect from 1 January 2010. This means that from
that date, operators supplying eGaming product to EU customers may have already accrued a liability
to VAT. If this is the case then the industry position will be much worse than previously reported.
Affected operators could have retrospective liabilities (for example, in the UK, tax authorities can
assess for underpaid VAT going back over a 4 year period) of significant amounts plus penalties and or
interest depending on the rules in that jurisdiction.
Is there any way of avoiding this?
The issue appears to have arisen due to the fact that the VAT rules and regulations in certain EU
Member States have not been written to consider eGaming. It is definitely the case in some
jurisdictions that the VAT legislation has not kept pace with technological innovation.
Opinions I have seen to date do not appear helpful. In the case of Germany and Ireland then a vanilla
interpretation of the legislation appears to suggest that VAT may be payable on eGaming activities.
However, given the amounts that are potentially at stake it would be prudent for operators to consider
this from all angles and more widely than “is this subject to gaming tax or VAT?” Tax legislation, policy
and case law is generally complex and VAT is renowned as one of the most complicated areas. As such
it is definitely worth exploring the strength of arguments across jurisdictions where the risk could be
seen as material.
Once operators have undertaken additional analysis, confirmed the strength of potential arguments
and calculated the amounts at risk then informed commercial decisions can be made.
This should be approached in a structured manner
This matter should, if not already, be firmly on the Board’s radar. Clearly materiality needs to be taken
into account as nobody is likely to get too excited where revenues across potentially affected
jurisdictions are of a negligible amount. It is also important to carefully consider the questions to be
asked in affected jurisdictions, especially the nature and context around the question. It is often the case that
things can get lost in translation and it should be remembered that the jurisdictions under
analysis may not have much in the way of experience in eGaming.
In the event that VAT is found to be ultimately payable, analysis needs to be undertaken on the effect
of marketing and promotions, and use and enjoyment provisions. That is in addition to the compliance
aspects of registration, statutory reporting requirements and whether fiscal representation is required.
Once this is complete companies can then determine any system and process implementations that
may be required before actually being in a position to calculate respective VAT liabilities.
If all of the above is not enough, industry awaits with interest how Member States respond to recent
European Court VAT judgments on B2B service agreements and the ongoing Base Erosion Profit Shifting
issues across wider taxes.
Taxing times indeed for eGaming.