Competitive tax rate for online gambling is compatible with EU State aid rules

2011-09-20

Reading time 1:37 min

(Belgium).- In a landmark decision adopted today, the European Commission confirms that Member States are entitled under EU state aid rules to apply lower tax rates to online compared to land-based gambling activities. EGBA welcomes this decision which puts an end to one year of legal uncertainty. It confirms that in order to be efficient, online gambling regulations must be competitive as the black market is only a “click” away on the internet.

Complaints filed mid 2010 by the Danish Slot Machine Association and by one of the terrestrial casinos claimed that the lower tax rate set for online casino operators in the context of the opening of the Danish gaming market had to be considered an illegal State aid. This procedure brought the Danish authorities to put on hold the entry-into-force of their Gaming Act which was originally scheduled for beginning of 2011.

After 10 months of formal investigation the European Competition watchdog finally ruled that:

- “A law liberalising gambling in Denmark and at the same time creating lower taxes for online casinos than for land-based ones is in line with EU state aid rules. This is because the positive effects of the liberalisation of the sector outweigh potential distortions of competition”. - European Commission Press release IP/11/1048

- “A duty making the offer of the Danish online providers too expensive would have rendered the liberalisation of the market devoid of purpose.“ - European Commission Press release IP/11/1048

Sigrid Ligné, Secretary General of the EGBA states: “We are satisfied that this investigation has led the European Commission to confirm that differentiated tax treatment for online and offline gambling activities is justified and is the result of distinct business environments. Online operators are subject to a much higher global competitive pressure than land-based providers. The business model of land-based operators is completely different as casinos in particular operate quasi local monopolies in their specific geographical market”.

Ligné adds “Such differentiation proves also to be essential from a tax efficiency perspective. As confirmed by several econometric studies, the total amount of tax collected under a higher tax rate would eventually be lower than the total amount collected on the basis of a tax rate as provided for by the Danish Gambling Tax Act. Uncompetitive regulations based on excessive tax rates and disproportionate licensing requirements do not increase revenue but rather push consumption to the black market as shown recently in France.”