New Dutch Law Engenders Questions on Tax Liability, Lawyer Says

The Dutch tax authorities have been given the power to impose a 29 percent tax on foreign online gambling operators, but whether or not they will do it remains to be seen.

On Tuesday, the Dutch Senate approved an amendment to the Gaming and Betting Act extending the country’s tax on land-based gaming to online gambling operators.

The law is a surviving piece of a proposal that would have given Holland Casino a three-year online gaming license, according to Justin Franssen, a lawyer with Van Mens en Wisselink in Amsterdam.

The Holland Casino licensing proposal was rejected by the Senate in April.

“While that bill died, somehow the tax law survived,” Mr. Franssen told IGamingNews.

Now, the Senate has passed a convoluted gaming tax bill that may have even the tax authorities scratching their heads.

Mr. Franssen explained the essence of the new law.

Domestic illegal online gaming operators, or those not licensed by the state, will now be taxed 29 percent on revenues, Mr. Franssen said.

But, foreign illegal online operators, or those licensed in other countries but which serve Dutch nationals, may be immune from taxation under certain circumstances. It is customers who play with a foreign operator who will be responsible for claiming their winnings for taxation.

The trouble with the plan, however, according to Mr. Franssen, is that in the course of the bill going through the houses of Parliament, a theoretical conflict arose over exactly what constitutes a domestic illegal operator.

“The secretary of state, who was responsible for this law, has taken the position that foreign operators should be perceived as domestic operators for as long as they accept Dutch nationals,” Mr. Franssen said.

“It’s a very theoretical discussion, but in essence this could mean that foreign operators, by accepting Dutch players, become domestic operators and therefore should be held liable for taxes,” he continued. “But this is not the reality of the matter.”

Based on his initial analysis of the law, Mr. Franssen does not think foreign operators will get into a lot of trouble.

For affiliates in the Netherlands, however, it may be a different story because it is possible that the authorities could find that the affiliates, though they are not operators in the strict sense, are guilty of aiding and abetting and, therefore, liable for domestic taxes, he said.

The same may apply to foreign operators who have a physical presence in the Netherlands through a local office or country manager, but Mr. Franssen is not putting much stock into it.

“Again this is just my initial analysis of the law,” he said. “As long as a foreign operator has no physical presence in the Netherlands whatsoever — either through affiliates, offices, country managers or anything like it — I think it’s fair to say that the tax authorities have no jurisdiction. The player will be the one to be taxed.”

One other potential problem with the law is that it could create a conflict of interest between players and foreign operators.

Players who win at a foreign gaming Web site could argue that they are not liable for the tax because the foreign operator accepted a Dutch national, making it a domestic operator, and thus liable for domestic tax, Mr. Franssen theorized.

The biggest concern is in not knowing the application of the law. Whether the Dutch tax authorities will go after the individual players or be aggressive and seek out foreign operators is up in the air at this point.

The Netherlands, which has been in the throes of infringement proceedings at the European Commission since April 2006, has been trying to keep what it considers illegal online gambling out of the country for many years.

Most recently, in February 2008, the Dutch government proposed regulations that would reportedly hold banks and credit card companies criminally liable for processing transactions between Dutch citizens and foreign online casinos.

Under the proposal, the government planned to circulate an online gambling company blacklist to banks and payment processors.

As of September, the list has not been published, according to Mr. Franssen.

“When I spoke to my contact at the ministry of justice he had no news; nothing at all,” he said.

In the meantime, he said the government has been clever by coming up with the online gaming tax law.

“They are just trying to come up with the right tools to disrupt our beloved industry,” he added.

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This article was previously published in IGaming News. The author of this article is Emily D. Swoboda