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

Affiliates Implicated In Dutch Internet Gambling Tax Mystery

Uncertainty surrounding new online gambling tax legislation passed in Holland last week has led legal observers to suggest that it could be the owners of affiliate websites that are the most at risk from the new taxes, more so than offshore operators or Dutch players themselves.

Under the Online Gaming Tax Act, which was passed in the Dutch Senate last week [3], foreign internet gambling activities have been brought under the scope of Holland’s gambling tax regime for the first time – despite concerns expressed by some politicians as to whether the Government should tax activities that are nominally illegal under Dutch law.

Licensed domestic providers such as De Lotto, which offers its ‘Toto’ sports betting service via the internet, are currently taxed at the established gaming tax rate of 29 percent, but the new Act extends the tax bracket across all forms of internet gambling – whether licensed or unlicensed, foreign or domestic. The tax will come into effect once it is published in the Dutch Government’s official gazette, which is expected to be within the next few weeks.

The tax proposal had initially been considered as part of a broader legal project that would have awarded monopoly casino operator Holland Casino a temporary three-year licence to operate an online casino website for Dutch players. The Senate voted against authorizing the online licence for Holland Casino earlier this year [4], but politicians pushed ahead with the tax proposals as they maintained it would act to curb the growth of illegal gambling in the country.

The new law states that domestic providers (which would have included Holland Casino, had they been awarded the licence) will continue to pay the 29 percent tax on their own gross gaming revenues. However, it stipulates that for foreign games it is Dutch internet gamers themselves that will be taxed at the same rate of 29 percent on their winnings.

Comments made in the Dutch Parliament by Holland’s Undersecretary of Finance have led to some confusion as to whether cross-border gambling services will be considered foreign or domestic for taxation purposes. The remarks also engender further doubts as to the enforceability of the new tax rules, according to legal experts.

The law states that certain criteria will be used to classify whether an internet gambling service is domestic (and thus liable to pay taxes directly) or foreign (whose customers must assume the tax on their winnings). These criteria include the language of the website in question, whether it is licensed in Holland and, critically, where the provider of the website is based.

This wording would seem to suggest that an English-language online gambling site based in, say, Gibraltar or Malta would be considered foreign and that it should be the Dutch customers who assume the 29 percent tax. However, the Undersecretary suggested in Parliament that all websites accessible in Holland should be considered domestic providers – implying that the Ministry of Finance expected the operator to pay tax to the Dutch Government.

This understanding of the law is likely to prove ill-founded, according to Frans Duynstee, head of tax law at Dutch firm Van Mens & Wisselink. Duynstee added that it was highly questionable whether Dutch customers of many ‘foreign’ websites could be lawfully taxed on their winnings.

Duynstee told GamblingCompliance that the majority of Dutch customers would want to be transparent with the Dutch tax authorities as to their online gambling habits. However, he added that many would be able to claim exemptions from the tax. “The Dutch player, so long as gambling is not his profession, should be able to claim a tax exemption where the online gaming provider already pays a comparable gaming tax in its host jurisdiction,” Duynstee explained.

Furthermore, Duynstee believes that EU-based online gambling providers and Dutch players could also be protected by EU law, pointing, in the case of the players, to the Lindman precedent [5]set by the European Court of Justice in 2003. In Lindman, the ECJ ruled that Member States could not tax winnings on foreign lottery games when similar domestic games where tax exempt.

How this would apply to the Dutch situation is not entirely clear, suggest sources in the Dutch Ministry of Justice who point out that the Dutch tax regime already applies taxes to gambling in different ways.

Dutch lottery players assume taxes for lottery winnings, the Ministry of Justice source pointed out, when it is Holland Casino, rather than players, that pays tax on gaming revenues for land-based casino games. “Different taxes are applied to different sectors. That’s how things are in Holland, and how things continue to be,” the source said.

Notwithstanding doubts as to whether the Ministry of Finance will be able to levy internet gaming taxes on either foreign providers or domestic players under the new Act, Duynstee believes that Netherlands-based affiliate websites for foreign online gaming companies could come to be targeted.

The litmus test could prove to be whether or not affiliate websites are considered ‘providers’ per se. But Duynstee suggested that they risked paying a 29 percent tax on their gross revenues if so. “If you are in affiliate marketing then I think you’re in a grey area,” he said. “I expect that this bill will be a tool for the tax authorities to attack the affiliates of big online casinos.”

For many observers, the online gaming tax bill will signify a further clamp down on foreign internet gambling on the part of the Dutch authorities.

In January of this year, Minister for Justice Hirsch Ballin said he had instructed officials to prepare a ‘blacklist’ of foreign gambling websites that were actively targeting Dutch citizens. This list would contain around 30 leading international websites and would be circulated to Dutch financial institutions who would be instructed to block financial transactions between those sites and Dutch players, the Minister explained.

However, GamblingCompliance understands that a final version of a Dutch online gambling ‘blacklist’ is still some way off completion. Attempts by the Ministry to draw up an official list of known child pornography sites were recently abandoned, with internet service providers eventually electing to identify and block sites themselves.

The Ministry of Justice source said that this development did not mean that it would not succeed in circulating a blacklist for gambling, but acknowledged that the Ministry was “making very slow progress,” as it continued to hold ongoing talks with Dutch financial services companies.

© Gambling Compliance Ltd 2006

This article is written by James Kilsby. This article was previously published on GamblingCompliance.com (http://www.gamblingcompliance.com)

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Source URL: http://www.gamblingcompliance.com/node/19474

Links:

[1] http://www.gamblingcompliance.com/

[2] http://www.gamblingcompliance.com/author/30

[3] http://www.gamblingcompliance.com/node/19215

[4] http://www.gamblingcompliance.com/node/13406

[5] http://www.gamblingcompliance.com/node/6892

Irish Casino Report is Published

The report of the Irish Casino Committee Regulating Gaming in Ireland was finally published by the Irish Department of Justice, Equality and Law Reform on Thursday, 10 July 2008

“Regulating Gaming in Ireland”:

The Casino Committee Report is Published

The publication of the Irish Casino Committee Report has been long awaited by all in the Irish gaming and gambling industry.

The report of the Irish Casino Committee Regulating Gaming in Ireland was finally published by the Irish Department of Justice, Equality and Law Reform on Thursday, 10 July 2008.

The press release from Minister for Justice, Equality and Law Reform, Mr Dermot Ahern, T.D., that accompanied the publication of the report identifies the need for reform and the route that the Minister propose’s to take to achieve it.

The Irish Casino Committee was established in 2006 and asked to prepare a report for the Government on the possibilities for regulation of casino style operations in Ireland and some other matters relating to gaming and gambling, such as online / Internet / remote gaming.

Please contact Deirdre Kilroy of LK Shields if you would like any further information about this development. Email address: dkilroy@lkshields.ie

From e-Gaming to e-Music

TIME Law News 1 | 2008

Against the background of Web 2.0, e-business in Germany has been able to record magnificent records in turnover, and – on the other hand – is faced with treacherous risks – an economic, technical and legal examination of a future market in Germany.
Germany and the WWW: this has, particularly during the last 5 years, been a unique success story – in particular from the economic point of view.

1. The economic side of German e-business

A recent study, commissioned by the BITKOM (German Federal Association for Information Industry, Telecommunications and New Media), forecasts a continuing steep increase in turnover for German e-business. By as early as 2009 – according to BITKOM – turnover will have increased to the incredible amount of 694 billion Euro. Just as the football club FC Bayern München (FCB) will be leading the Bundesliga for an incalculable period of time, Germans seem to be uncatchably active in the WWW, and particularly in European internet trade. Altogether, Germans have sold 30 per cent of all goods and services traded and sold via the internet – according to the latest BITKOM study. And just as Luca Toni (“Il Bomber”) is the trump card for the FCB, the area of internet gaming seems to be a promising card in the pack of German e-business. Nielsen, an international institution for media and market research, reported at the end of August 2007 that the number of online players increased by 76 % within a period of only three years. In July 2007, 9.2 million Germans had visited online gaming websites (27.6 % of all German internet users), only 5.2 million in July 2004 (17.5 %; source: Nielsen/NetRatings, NetView, Germany, Home & Work).

In a press release from the 10th of June 2008 the German Internet Industry Association BITKOM focuses on the current private Internet Betting industry. This sector is booming especially in times when Europe´s leading soccer nations meet in Switzerland and Austria. According to a new marketing study 2,2 million Germans are betting in the internet on a regular basis. Approximately 700.000 Germans are betting on the UEFA European Championship Tournament. According to BITKOM Vice-President Achim Berg these figures indicate that the private i-betting business is booming in Germany!

The “mother of online gaming”, the digital game market for consoles and PC games, also is continuing to grow steadily in Germany. The motor of this growth, however, mainly is the increasing spread of PCs and the growing number of broad band connections.

The potential of online gaming in Germany is even beaten by the potential of online gambling and the field of internet games of chance respectively. It is not unlikely that this area (in particular sports betting), will soon be knocked out of the state’s hands (which is what happened in Italy and Spain and will probably soon happen in Sweden and France).

Until the time of the definite end of the (online) gambling monopoly in Germany, it will not only be the legal situation that continues to be fragmented. Economic estimates can hardly be carried out either, due to the lack of regulation and supervision and the growing black market in the area of unlicensed gambling coming with it (in this context, please also see the report in TIME-Law-News by Prof. Dr. Dr. Schneider – “Rapid growth expected of the black market for sports betting”).

Goldmedia GmbH, a consultancy company specialising in consultancy in the area of telecommunications, media and entertainment, in spite of all difficulties dared to make a forecast in 2006, which clearly shows the size of this hugely promising but also risky market. We refer to the chart in the attached pdf docoument „TIME Law News 1|2008“.

The lion’s share of the growing turnover in online gambling, however; goes to the large providers of online gambling in Britain, Malta and Gibraltar.

The flowing chalice more or less passes by the state-run providers of gambling in the Deutsche Lotto-und Toto Block and the potential recipients of their funds (e. g. leisure sport associations) who recently registered record losses in turnover. The reason for this is simple: The State Treaty on Gambling, which came into effect on 1 Jan. 2008, provides for a highly disputed prohibition of operations and advertising. However, this prohibition does not apply for some private providers due to reasons based on the EU Treaties and on the German Constitution (compare report in – TIME-Law-News „Taking stock of legislative activities“ – by the gaming law experts Claus Hambach & Dr. Wulf Hambach). Since the State Treaty on Gambling came into force, sports betting turnover – according to Toto-Lotto Niedersachsen –has collapsed dramatically. Lotto boss Rolf Stypmann said that the game Oddset slumped by 51.3 per cent during the first 15 weeks of this year. The Lotto boss also predicts economic problems in connection with the State Treaty on Gambling for the future. The newspaper Hessische/Niedersächsische Allgemeine Zeitung reported on the topic in an article on 15 Apr. 2008:

“According to the State Treaty, it will be prohibited to play the lottery via the internet from the beginning of next year onwards. “I consider this to be a mistake”, Stypmann said. On the one hand, the internet is an important future market for Toto-Lotto. On the other hand, the game would be easier to control there than in a lottery receiving office, where the players remain completely anonymous.”

Let us now leave the losers of e-business, and return to the winners: For years, so-called internet dating services have been another important pacesetter for German e-business. According to BITKOM, turnover in this segment of internet trade increased by almost one third to an incredible 85 million Euro in 2007. For 2008, an increase to 103 million Euro has been forecast. This means that 6.3 million Germans per month are looking for a partner online. This corresponds to the number of people living in the Federal State of Hesse. With 85 million Euro, Germans spent more money on the online search for a partner than on music downloads.

However, the e-music industry has no reason to hide behind online gaming and the “Friendscouts”. While the e-music segment so far had shown rather restrained growth in comparison with the rest of the world (2005: 19 million downloads of individual titles, 2006: 24 million; source: heise.de), 2008 seems to finally be seeing the breakthrough. The first quarter of 2008 already gave the providers of legal music downloads a new record. During these three months alone, 10.3 million individual titles were bought online. According to the market research company Media Control, this corresponds to an increase of 38.1 per cent compared to the same quarter of the previous year. Turnover increased by 45.2 per cent to the present figure of 20.4 million Euro (source: GfU/BITKOM).

Bernhard Rohleder, CEO of BITKOM, thinks that, in addition to the growing number of internet users, further factors are decisive for a positive development of e-commerce:

“High safety standards lead to a higher level of Trust in online purchases, electronic payment systems for smaller amounts become increasingly accepted, and mobile telephones have been established as a new sales channel in addition to the PC.”

2. Assessment of German e-business under aspects of (internet) technology

A high level of security can be ensured by standards regarding technology or internet law. However: In particular young operators of (start-up) web portals often can hardly implement such high security standards for financial reasons. From such operators’ points of view, such standards rather impede fast initial growth.

However: Simple (start-up) online shops more and more often develop into complex Web 2.0 offers. In addition to the possibility of ordering products, such pages provide e-poker schools, the compilation of an own user profile, internal communications or live streaming offers. The web applications necessary for this are becoming more and more complicated and pose (internet) technical problems for the operators of the websites as well as for their users; as a consequence, the utilisation of such problem-afflicted 2.0 websites (once more) becomes unattractive.

The following commentary from the CHIP online forum shows the technical difficulties:

”Today for the first time I am having massive problems with Online Video Streams. Giga, Gamesports-TV and various other streams are lagging and buffering continuously. Haven’t reset anything and done the whole programme like searching for viruses/trojans/bugs, system recovery, hardware check etc. I have zero problems with my speed on the net, and all audio streams run without any problems. But as soon as I open a videostream via Winamp or WMP, it lags + re-buffers every 20 – 30 seconds.”

Such technical problems lead to frustration – in particular on user sites.

Thus: In order to prevent the operator from a technical and – as a logical consequence – an economic waterloo after the initial web euphoria, prevention is essential. This is because it is sufficiently known: A coffee party amongst elderly ladies is nothing compared the gossip- and criticism-mania of disappointed users who will not let off steam at the coffee table, but regularly in user forums. Obviously, the operator or the person interested in an IT-safe web offer exceeding a mere information site, can find information, in particular on the internet. For instance, the Bundesamtes für Sicherheit in der Informationstechnologie (German Federal Office for Security in Information Technology) provides extensive information in this field (e.g. http://www.bsi-fuer-buerger.de/).

However, in order to face the task of providing a website which really is secure (in internet traffic) it is not obligatory but advisable to contact the “TÜV (technical control board) for internet security”. A recommendable contact here is, for instance, TÜV Rheinland Secure IT GmbH (www.tuv.com) which specialises in the area of internet security; TÜV Rheinland Secure IT GmbH is a company of the TÜV Rheinland Group which is about to merge with the TÜV Süd. Free events such as the TÜV Rheinland Secure IT event “Webportale: Mehr e-Business durch höhere IT-Qualität” (web portals: more e-business through improved IT quality) can provide an idea of the current dangers looming on the internet for the website operator and his users, and how to best face the continuously growing and changing dangers.

This is particularly important if entertainment games, competitions or the collection of private data (keyword: build-up of a data bank) are incorporated, if a user portal is established or if music offers are provided (regarding the legal difficulties surrounding the e-music business, please compare the TIME-Law-News report “The utilisation of music on the internet” – by Attorney-at-Law Marco Erler, expert in the areas of music and copyright law. The legal problems which inevitably arise in this context – some of them will be described in the following legal chapter – should also be eliminated in this process. Legal challenges occur as soon as an internet offer is no longer gratuitous, but if payments are due for internet services. Attorney-at-Law Dr. Michael Hettich approaches the problems surrounding so-called e-payment in his TIME-Law-News chapter “E-payment in Europe: Current technical and legal framework conditions”).

The pitfalls of IT law must not be neglected either. Such pitfalls are lurking for the operators of websites, in particular if they use non-updated information obligatory under user or consumer protection laws (keyword: outdated general terms and conditions, data declaration and cancellation notification etc.). For instance, website operators are obligated to adapt their notification on the user’s cancellation rights to the new statutory requirements by 30 Sep. 2008 at the latest in order to avoid expensive legal action. Attorney-at-Law Susanna Münstermann, expert in IT law, describes some treacherous pitfalls of IT law in her legal chapter: “Threat to existence due to cease-and-desist letters”.

Update on relevant 2007 case law

In this article, we provide an overview of European case law that is relevant for private gaming operators. We discuss case law from Germany, Denmark, Sweden, the Netherlands, Malta, Belgium, France and Norway. We also discuss the major regulatory and political developments.

Germany:

2007 has been marked by mostly “favorable” case-law for private gaming operators and by seven references for a preliminary ruling on the interpretation of national betting and gaming provisions with article 49 EC Treaty, currently still pending.

Moreover, following the entry into force in January 2008 of the new interstate treaty (“Glücksspielstaatsvertrag”), the European Commission has opened an infringement proceeding against Germany. The European Commission questions whether the treaty is consistent with article 43 and 49 of the EC Treaty. It also has doubts on the consistency of the treaty with article 56 of the EC Treaty (free movement of capital).

Here are a few lines on the recent relevant national decisions:

– In January 2007, the Higher Administrative Court of Bavaria decided that the Bavarian ministry for research and sciences was not entitled to order the Bavarian agency for new medias to prohibit the advertising of sports betting.

– In May 2007, the Higher Administrative Court of Bavaria ruled that a national measure prohibiting internet gaming was not justified since current technologies do not permit the enforcement of such a prohibition.

– In July 2007, the administrative court of Stuttgart made a reference for a preliminary ruling to the ECJ concerning the consistency of the sports betting monopoly and of national gaming licences with articles 43 and 49 of the EC Treaty.

– A Stuttgart court also held that the local football club (VFB Stuttgart) could not be prevented from advertising for Austrian bookmaker Bwin.

– On 6 November 2007, the administrative court of Hesse cancelled the regional authorities decision to prohibit Bwin from offering its services in the state of Hesse on the ground that it was technically impossible to prohibit the provision of online gaming in one state only.

– The administrative court of Dresden cancelled in October 2006 a decision by the German authorities ordering Bwin and other sports betting operators to stop their activities in Germany. The court considered that the situation was not clear in view of national and European Community law. It also referred to the March 2006 Federal Constitutional Court decision ordering the German state to reexamine the national sports betting monopoly in the light of European Community law.

– The Federal Court of Justice confirmed in August 2007 a regional decision cancelling prosecutions against a bookmaker accused of having operated illegal sports betting in the state of Saarland in 2003 and 2004.

– In December 2007, the Higher Administrative Court of Saxony decided that the licence granted to Bwin by the ex RDA in 1990 entitles it to offer online sports betting only in the 5 ex-DDR states. This decision contradicts previous regional court decisions (Hesse and Bavaria).

– The administrative court Frankfurt/Main decided in January 2008 in interim proceedings in favor of a suspending effect for a private sport betting provider against a cease and desist order.

– In January 2008, the administrative court of Schleswig seized the ECJ of a request for a preliminary ruling in the context of the new sports betting monopoly. The hearing in Schleswig pertained to the law suit filed by an online provider of sports bets based in Gibraltar who is looking for the acknowledgement of his European licence for the German Federal State of Schleswig-Holstein as well, on the basis of the principle of the freedom to provide services. The court asked the ECJ whether consistent and systematic restrictions of the sports betting market were possible, when areas (i.e., slot machines) which are relevant with regard to addiction are not included in the scope of application of the interstate treaty.

– The administrative court of Regensburg suspended in January 2008 a defended claim against a cease and desist order with regard to the preliminary rulings at the ECJ.

– In February 2008, German Federal Court of Justice dismissed competition law actions filed by state-run gambling providers (among others Westlotto) against private sports betting providers holding ex-DDR and EU licences (among others bwin).

– In March 2008, the Federal Court of Justice dismissed Bwin’s claim to delay the application of a Cologne court decision dating September 2007 which was rendered following an action brought by Westlotto and granting the latter the right to claim damages for unlawful competition; this decision was rendered whilst Bwin’s appeal of the Cologne court decision is still pending.

– In March 2008, the Higher Administrative Court of Baden-Württemberg allowed an appeal against a dismissive judgment by the Administrative Court of Karlsruhe, due to substantial doubts as to whether politics regulating games of chance in Germany are implemented in a consistent way. The case concerns a claim by a plaintiff that its UK licence is also valid in the state of Baden-Württemberg and is to be regarded as a licence under German law. The court will most probably suspend the proceedings until the ECJ has replied to the requests for preliminary rulings of which it had been seized.

– In April 2008 the administrative court Berlin explained in detail why in interim proceedings the private interests of the sports betting provider outweigh the public interest. The court especially elaborates on the guidelines set by the Federal Constitutional Court in 2006 and gives examples why most probably these guidelines have not been realized in Berlin.

– For the first time a German court decided in principal proceedings in favor of private sports betting broker. In April 2008 the administrative court in Freiburg focused on the legal situation in Baden-Wuerttemberg and how the state monopoly is realized. The court came to the conclusion that the marketing concept of the state provider is contradictory to the goals of the interstate treaty.

Denmark

Case law

Danish case-law in 2007 includes two judgments that are noteworthy to the gaming industry. Although the first one was favorable for specific private gaming operators, the second overturned the first judgment. These judgments were rendered in a case revolving around the legal regime applicable to poker. In July, a District Court in Lyngby acquitted the president of the Danish Poker Association of charges of organizing illegal gaming. The District Court considered tournament poker (Texas Hold ‘em style) to be skill game and not a game of chance. However, this landmark judgment was overturned by the High Court on 19 December 2007, ruling that poker was in fact a game of chance. It is reported that an appeal at the Supreme Court can be awaited.

Political developments

Developments outside the courts are also noteworthy. On 21 March 2007, the European Commission sent Reasoned Opinions to several Member States: Hungary, Finland and Denmark. The European Commission stated that the regulations on sports betting of these countries are in breach of the freedom to provide services, as laid down in article 49 of the EC-Treaty. The Commission considers these regulations to be incompatible with EU law, and have not been shown to be necessary, proportionate and non-discriminatory.

The pressure from the European Commission may have been effective. In April 2008, the Minister of Tax Kristian Jensen stated that the Danish government is considering a reform of the gaming market which includes licensing opportunities for online gaming and skill games (including sports betting). The Minister emphasized that the licensing requirements for online gaming and skill games will be strict.

Sweden

Case law

A judgment by the Supreme Court ordered the Court of Appeal to assess the compatibility of Swedish gaming law with the EC-Treaty. This decision obliged the Court of Appeal to assess the compatibility of Swedish gambling legislation with EC law in light of the Reasoned Opinion sent by the European Commission and the case-law in Placanica (C-338/04). Following this judgment, the prosecution of media that carried gaming ads was halted by the Prosecutor-General.

Infringement proceedings

The European Commission has criticized both the Swedish legal regime on sports betting and the Swedish legal regime on poker. Regarding sports betting, the Swedish government received a Reasoned Opinion on 27 June 2007, together with France and Greece. A Reasoned Opinion constitutes the second stage in an infringement procedure. The third and final stage is a legal procedure with the European Court of Justice, in which Sweden can be ordered to alter its regulations.

The Netherlands

Case law

Several private gaming operators have tried to obtain gaming licenses in the Netherlands. The Minister refused all of these applications. Two remarkable judgments on refusals for gaming licenses were rendered by the Council of State in 2007. These judgments paved the way for a third judgment by that same judiciary in which the Council referred to the European Court of Justice for an answer on preliminary questions regarding the application for gaming licenses. In the first case, a District Court had rendered a positive ruling for private gaming operators, but the Council of State overturned that ruling. In the second case, the Council itself gave a ruling that can be considered positive for the private gaming industry.

– The first judgment revolved around the refusal of a casino license to CFR, a subsidiary of French casino operator Tranchant. The District Court of Breda had ruled that the State had not proven that the monopoly is a justified infringement of EU-law, while referring to the Gambelli judgment. The Council of State overturned this decision, stating that the Dutch regulations are coherent and systematic and fall within the criteria formulated by the European Court of Justice in Gambelli and Placanica.

– In the second judgment, the Council’s ruling was more positive to the private gaming industry. The well-known lottery intermediary Schindler had applied for a license to operate its own charity lottery. Three of such licenses are already issued at a semi-permanent basis and there is no law that restricts the number of operators. This is a remarkable difference with the CFR decision, because the monopoly for the operation of casinos is laid down in the 1964 Gaming Act.

– On 14 May 2008, the Council of State rendered its referral judgment in the case Betfair. It asked questions on the subjects of mutual recognition of gaming licenses, equal treatment of potential candidates for licenses and the transparency of the allocation procedure. Further more, it asked under which conditions the exclusion of third parties in the allocation of gaming licenses is justifiable.

– In the proceedings on the merits, the De Lotto vs. Ladbrokes case is pending before the highest civil judiciary; the Supreme Court. The opinion of Advocate-General mr. Keus is noteworthy. He opposes a referral to the European Court of Justice, because he considers the pending infringement procedure by the EC on the very same subject to be more suitable to assess the compatibility of the Dutch policy on sports betting with European law. Despite his reluctance to refer to the ECJ, his opinion does contain well thought proposals for preliminary questions.

Political developments

Besides the developments in case-law, their have also been regulatory issues that are noteworthy to the private gaming industry. At the moment, all offering of online gaming to Dutch residents is prohibited. To counteract private gaming operators, the authorities intended to create a state monopoly for online gaming by introducing a new piece of legislation, the Online Gaming Act. The exclusive license would have been issued to state owned casino monopolist ‘Holland Casino’. The Senate rejected the proposed Online Gaming Act in the narrowest vote possible.

– Another method for the Dutch authorities to counteract private gaming operators is the blocking of financial transactions with online gaming operators. This only relates to banks with Dutch licenses that process direct transactions between Dutch residents with Dutch bank accounts and a specific black list of online gaming operators.

– Because the payment blocking can be easily circumvented, the Minister also intends to address Internet Service Providers. The Minister considers these service providers to be facilitating an illegal act. The Ministry will ask these service providers to block the access to the websites of online gaming operators. It is likely that this will also include a blocking of the gaming servers.

Infringement proceedings

In 2006, the European Commission sent a Letter of Formal Notice and a Supplementary Letter of Formal Notice to the Dutch authorities, regarding the regulations on sports betting who seem to be violating the freedom to provide services. On 28 February 2008, the European Commission also sent a Reasoned Opinion, which is the second stage of an infringement proceeding. It is reported that in this Reasoned Opinion, the European Commission asked the Netherlands to alter its regulations on sports betting. The third and final stage is a legal procedure before the European Court of Justice, which may order the Netherlands to alter its regulations.

Malta

Case law

On 9 January 2007, the Court of Appeal delivered a favorable judgment to the private gaming industry. In this landmark judgment, the Court prevented the enforcement in Malta of a French judgment in a case between French horse betting operator PMU and the Maltese company Zeturf. It is noteworthy that under Council Regulation 44/2001, only judgments in civil and commercial matters in the Member States of the EU can be enforced. The Court of Appeal decided that the French judgment consisted of a public law nature, concerning the protection of state monopolies.

Belgium

– The sponsoring of cycling teams by private gaming operators led to the decision of race organizer ASO to refuse a ProTour cycling team to participate in two ProTour Belgian cycling events. In a judgment of 27 June 2007, the president of a Belgian commercial court ordered the ASO to allow the participation of a cycling team sponsored by the private gaming operator Unibet.

– The Liège first instance court dismissed an action filed by the French tennis Federation against three private online betting operators (Ladbrokes, Bwin and Betfair) on 28 April 2008. The action was aimed at preventing Belgians from betting on the results of the Roland Garros tournament and the French Master Series. The judges concluded that these private operators had behaved in a prudent and diligent manner, and secondly, considered that the use of a sports event name for online betting cannot be considered an act of parasitism. The use of the name of a sports event is necessary to identify the game on which the participant can place a wager. It is noteworthy that in France, a similar action of the FFT against private online betting operators Unibet and Expekt was allowed by the District Court (Tribunal de Grande Instance) on 30 May 2008. In contradiction to the Belgian court, the French court did consider the use of a sports event name by online betting operators to be an act of parasitism.

France

Case law

2007 has especially been marked by the landmark decision rendered by the Cour de cassation in July 2007. Furthermore, two decisions rendered in 2008 highlight the forthcoming liberalization of the gambling sector in France.

– On 25 March 2007, the District Court of Nanterre condemned two persons for having made accessible an online gambling website from the French soil, in spite of the prohibition. The judges considered that the French criminal law was to be applied because the website was accessible to the French public.

– On 10 July 2007, France’s Supreme Court, the Cour de Cassation, endorsed the ECJ teaching of the Gambelli and Placanica cases by deciding that where French gaming laws restrict free movement of services, lower courts must verify whether these restrictions comply with the requirements set by article 49 of the Rome Treaty. The Supreme Court also required from lower courts that they check whether general interest is guaranteed in the Member State where private operators are established.

– In January 2008, the Court of Appeal of Versailles decided to assess whether the French gambling legislation is compatible with community law and the criteria established by the European Court of Justice case law.

– On 9 May 2008, the highest French administrative court, the Conseil d’Etat, as requested by the Maltese operator Zeturf Ltd., decided to suspend its decisions until the European Court of Justice rules on two preliminary questions regarding the consistency of PMU’s monopoly with the EC treaty and how the infringement to the free provision of services should be considered: from the sole perspective of the provision of online betting services or more widely from the perspective of the whole gambling sector.

– On 30 May, the Paris District Court decided to block Roland Garros betting by the private operators Unibet and Expekt. The judges found that the betting operators were guilty of commercial free-riding, by unduly profiting from the investment made by the French Tennis Federation.

Regulatory developments

The law on the prevention of delinquency has encapsulated criticism, especially the application decree regarding the obligation for financial institutions to block the transfer of funds from unauthorized websites.

– The law on the prevention of delinquency, adopted on 5 March 2007, provides a set of legal sanctions (including criminal convictions) for online gambling operators.

– On 30 November 2007, France notified the European Commission of the draft decree, requiring financial institutions to block the transfer of funds from unauthorized websites. The European commission announced its opposition to this legislation on February 29, 2008 in an opinion which prolongs the standstill period of this act to March 31, 2008. France has still not submitted a report explaining its reaction to the opinion.

EFTA

The gaming regulation of the Kingdom of Norway and its compatibility with the freedom to provide services and the freedom of establishment were the subject of two EFTA-Court cases. Norway is not a Member State of the European Union, but it is a Member State of the European Economic Area (EEA). The EEA is based on the same “four freedoms” as the European Community. Compliance with these four freedoms in the EEA is examined by the court of the European Free Trade Association (EFTA).

Case law

– On 14 March 2007, the EFTA-Court ruled that the implementation of an exclusive rights system for gaming machines in Norway is compatible with the freedom of establishment and the freedom to provide services. This case was lodged by the Surveillance Authority of the EEA.

. On 30 May 2007, Norway’s gaming regulations were again discussed by the EFTA-Court in a proceeding on preliminary questions. These preliminary questions were referred by the Oslo District Court in a case between British bookmaker Ladbrokes and two Norwegian Ministries. The EFTA-Court emphasized that requirements fulfilled in the Home State must be taken into account.