Spain: first guidelines about the future of online regulation

By Santiago Asensi of Asensi Abogados, article published first in European Gaming Lawyer magazine, Autumn issue 2010.

After almost three years since the Ley 56/07 de Madidas de Impulso de la Sociead de la Información – Law on Measures to Develop the Information Society – saw the light, establishing the six principles that will govern the future of online gaming regulation, Spain continues to be „lost in translation“ with regard to this gaming sector.

On several occasions in the last few months, there have been rumours saying that the first draft on online gaming was about to be circulated. Some even said that the law was going to be enacted before the FIFA World Cup, in order to benefit the sector. However, the reality is that our administration is not progressing at all on this matter.

Advanced information

The only information that we have to date was leaked to the press by LAE, the state’s lotteries monopoly. On January 18, 2010, El Mundo published the article “The government will finish with unauthorised online gambling,” the content of which can be summarised as follows…

The newspaper claims to have had access to the document entitled “Game regulation – general overview” drawn up by the Secretaría de Estado de Hacienda – State Office for Finance – dated January 2010, which mentions the following aspects in relation to the new online gaming law:

Philosophy: „What is not allowed is forbidden.“

Plans and working calendar: regulating, during the next few months, all game activities addressed to the whole national territory or which affect more than one autonomous region.

Licences:

• Each type of game will require a specific class of licence.
• The operator can be a Spanish or European Union company, but it will be necessary to have a permanent establishment in Spain.
• The operator will have to deposit a bond as a “general solvency guarantee” and “additional guarantees” for each class of game that if offers.
• The operator will have to present an operational plan for the activity that it wants to develop.
• Technical systems will have to be endorsed prior to the request for the licence.
• The Central Game Unit will have to be connected with the regulator 24/7 so that it is possible to register all of the activities.
• Servers need not be located in Spain, but it will have to be possible to monitor them from Spain.
• The period to resolve a licence application will be three months from filing. Administrative silence (i.e., no formal response within three months) will constitute a refusal.
• LAE reserves for itself the activity related to lotteries.
• A distinction is drawn between licences (with a permanent character) and authorisations (with an occasional or sporadic character).

Infringements and sanctions

In accordance with the typical classification of Spanish administrative law, infractions will be divided into three groups: very serious, serious and minor.

The status of very serious infractions will be given to the organisation or promotion of illegal games, the manipulation of technical systems, the granting of loans to participants, the manipulation of results and the supply of technical support to unauthorised operators.

The following will be regarded as serious infractions: lack of collaboration with the inspection, carrying out unauthorised advertising and the lack of information for participants, as well as the non-processing of their claims.

Apart from the applicable economic sanctions, which are yet to be defined, it will be possible to apply other types of measures

such as the blocking of illegal activities, the interruption of financial transactions or the withdrawal of advertising campaigns.

Taxes applicable

LAE’s document does not specify which tax regulation will be applicable to online gaming. However, the government has on a number of occasions this year leaked to the newspapers several options of taxation systems, which are as follows:

• Corporate tax, levying gaming activities like those performed by any other firm, together with a tax on players’ wins. An initial deduction of 19 per cent in each prize – in accordance with the capital return tax – would be applied to the player together with a definitive payment at the income tax return; or
• To follow the French system (8.5 per cent tax on each bet); or
• To follow the model of the Madrid and the Basque Country regions (10 per cent tax on the win).

Therefore, there is not yet a clear understanding of the government’s position on this matter, which must be discussed by the the Comisión Mixta de Coordinación de la Gestión Tributaria – Mixed Commission for Tax Management Coordination – the competent body in this matter. This body is formed by the tax ministries of each of the autonomous regions together with the tax authorities at state level.

It seems that the criteria followed by Madrid and the Basque Country could finally be the one adopted also in the national regulation, but again this is only a rumour.

Comments

There is no doubt that the delay on the part of LAE to circulate the first draft of the online gaming regulation has provoked a negative reaction from some of the autonomous regions. In this sense, the announcement of future regulations, either by means of press releases or, as is the case of Catalonia, through the preparation of a draft for a bill of law, seems to us just another way to increase the pressure exerted by the autonomous regions on LAE so that this agency cannot continue to defer the regulatory process in this matter.

It is worth mentioning that since 2007, the regions of Madrid and the Basque Country have had in place their respective sports betting regulations which contemplate the possibility of offering this type of game by means of remote systems, although none of the operators that have obtained authorisation in either of these regions has chosen that option. To put it in another way, until online gaming operators are interested (and they are not interested so far) in obtaining regional licences, the failure of any legislative initiative in this area is guaranteed.

Meanwhile, the delay in the regulatory process on a national scale is only and exclusively due to the fact that LAE is currently going through a restructuring process, which includes both the creation of a nationwide agency that will act as the regulator in online gaming matters and the possibility for LAE, as an operator, to take part in the commercialisation of new games through different channels. Until this restructuring takes place, it will be difficult for Spain to have an approved regulation in the area of online gaming.

Furthermore, the land-based gaming sector in Spain, represented by several associations, has started waging its own war against online gaming through the lodging of formal complaints before the different administrations, both nationally and regionally.

Thus, we now find ourselves facing a situation in which, on the one hand, the regional administrations want to put an end – as soon as possible – to the situation created by the lack of a regulation concerning online gaming and, on the other hand, the whole traditional gaming sector has taken legal action to defend its own interests.

Hopefully, this unclear scenario, full of loopholes and grey regulatory areas, will finally end within the next few months. This “lost in translation” situation does not benefit any of the players in this interesting industry.