The European Court of Justice has ruled in favor of the United Kingdom in its dispute with Gibraltar’s online gambling operators. The industry will lose some of the tax privileges that have attracted so many companies to the overseas territory, where corporate tax is 10% and gaming companies pay a mere 1% on bets placed with them.
Some of those advantages are now coming to an end. Gibraltar will have to adapt to the new tax regime adopted by London in July 2014, raising the gaming tax on money bet by UK clients to 15%. British customers represent around 80% of the industry total.
Even then, this figure is far below what other EU states levy on gambling activities: in Spain, this tax is 25%. Still, the hike represents a considerable setback for the Gibraltar gaming industry.
The EU decision also deepens the crisis of the business model that has driven growth for Gibraltar’s online gambling industry
In a judgment released on Tuesday, the EU Court of Justice used a complex formula to resolve the issues presented to it by the UK Supreme Court.
While admitting that “Gibraltar does not form part of the UK,” the judgment states that “Gibraltar is a European territory for whose external relations a Member State, namely the UK, is responsible, so that EU law is applicable to that territory.”
In other words, they must be treated as a single entity, rather than as separate territories within the EU, as the Gibraltar Betting and Gaming Association wanted.
“There is no factor that could justify the conclusion that relations between Gibraltar and the UK may be regarded [...] as akin to those existing between two Member States.”
Until now, Gibraltar-based gambling operators had followed earlier regulations stipulating that only service providers established in the UK were charged gambling duties on their gross from their supply of gaming services to customers worldwide.
The favorable judgment will allow London to increase its tax revenues at the precise moment when the British government is seeking to escape the jurisdiction of EU courts through Brexit.
The judgment will allow London to increase tax revenues just when the British government is seeking to escape the jurisdiction of EU courts through Brexit
The British treasury will take a bigger cut of the Gibraltar online gaming pie, a thriving industry that controls 60% of the global market.
The EU decision also deepens the crisis of the business model that has driven growth for Gibraltar’s online gambling industry. In the last two decades, gambling operators have flourished thanks to the favorable tax regime in the overseas territory.
If Brexit created an initial sense of unease, there is palpable uncertainty now with regard to the 3,252 direct jobs created by the 33 Gibraltar-based gambling companies that now face the prospect of losing competitiveness to other desirable locations, such as Malta or the Isle of Man.
English version by Susana Urra.