Taxation of poker in Europe
For poker players the profits, and regrettably also the losses, can quickly mount up. The game is played with high frequency at casinos and on poker sites and the stakes are often very high. The game generates vast flows of money in the directions of both winners and operators, and Governments across Europe have been swift to tax these monies, regardless sometimes of whether the game is marketed through legal channels. In the majority of instances tax is imposed solely on the profits realized by the gaming operator, with a distinction being made between forms of poker whereby an operator also participates in the game, or merely facilitates the game for others. However, in a number of instances the player is also required to declare game winnings for tax purposes. This article takes a comparative look at the tax treatment of poker in England, the Netherlands, Germany, Belgium and Malta. In doing so, we have differentiated between remote (internet) poker and live-tournament poker and, in the case of each specific country, we also outline who is defined as taxpayer, the type of tax liability involved and the taxable rates applicable.
These countries differ not only in their tax treatment of poker, but also in their definition of the game. A recent Dutch court judgment ruled that poker is not a game of chance but a game of skill.[3] In England, Germany, Belgium and Malta poker is clearly perceived to be a game of chance. The Dutch judgment, therefore, comes somewhat as a surprise, given that as long ago as 1998 the Netherlands’ Supreme Court ruled that poker must be defined as a game of chance.[4] The debate on the subject has now been rekindled and the Supreme Court is expected to deliver a further ruling on whether poker is a game of chance. If poker is classified as a game of skill, then it will no longer fall within the scope of the prohibition set out in the Dutch Betting and Gaming Act, and it will no longer be subject to the Dutch taxation on games of chance. However, current legislation will remain applicable until such time that the judgment has been confirmed by the Supreme Court.
Live Poker
Live poker may be a poker tournament in which the game operator provides solely the opportunity to others to participate or, alternatively, a tournament in which the operator also actively participates in the game. In the case of the latter, the organizer also runs a risk. In a number of the countries referred to above a distinction is made between these two forms of poker. In those countries the game organizer is the designated taxpayer for gaming tax purposes. However, the tax base for calculating the amount of gaming tax differs depending on whether the game operator also participates in the tournament.
We will start by looking at the taxation of poker in Germany, where tax legislation on casino games is regulated separately in each federal state. The example used here is the legislation applicable to casinos in Nordrhein-Westfalen.[5] The German tax on games of chance comprises a casino fee, that is payable by the casino if income derived from the games of chance organized by the casino exceeds EUR 1,000,000. If the casino itself does not participate in the game then the taxable amount is the amount ultimately attributable to the casino for organizing the game. This figure is calculated on a daily basis and any losses incurred on the previous day cannot be set-off. However, if the casino is also a player then losses from the previous day are deductible. In that case the taxable amount is the amount by which the total stake exceeds the winnings paid out to the players, less any losses incurred by the casino on the previous day.
Belgium, like Germany, levies tax against the operators of live tournaments. The tax imposed on gambling and games of chance is a form of taxation that is equated with income tax.[6] A specific feature of Belgian gaming tax is that it provides an extremely broad interpretation for designating who is taxpayer. Any person placing a wager, either for their own account or as intermediary, is deemed to be a taxpayer for gaming tax purposes. In the case of live poker, the casino organizing the tournament is the designated taxpayer. However, if the wager is accepted by another organization, that organization can also incur a gaming tax liability. If the casino participates in the poker tournament the tax base is calculated as follows: the amount collected from the players at the end of the game, minus the casino’s initial stake and any subsequent losses suffered by the casino during the game, is taxed as gross result. This taxable result is calculated on a daily basis. Since it is feasible that the casino may incur a loss result, the loss may be offset against a positive result in subsequent days. In the event the casino does not participate in the game, and consequently does not incur any risk, the taxable amount is formed by the total stakes received from the players, less the prizes paid-out to the players. The term ‘stake’ must be given a very broad interpretation. Monetary bets and all other amounts, such as participation rights, are included in the calculation.
England also levies a gaming tax against the providers of live poker, known as Gaming Duty.[7]Generally speaking, an organizer of live tournaments is registered as designated taxpayer. However, it is feasible that other individuals may also be liable for Gaming Duty. These are the persons who make the location for the tournament available, the persons responsible for organizing the game and, if these activities are serviced by a company, the managing directors of that company may also be considered to be taxable subjects for purposes of the Gaming Duty. In the case of poker tournaments in which the provider is not a game participant, the taxable result is the accumulated sum of any charges made in connection with the dutiable gaming. If the casino participates in the game then the dutiable amount is the total of all stakes received less the winnings paid-out to the players.
In Germany, Belgium and England gaming tax is only levied against the operator of a poker tournament. Players’ winnings are not taxed. By contrast, gaming tax in the Netherlands is extremely comprehensive and provides not only for the taxation of foreign operators but also Dutch-resident participants in foreign live tournaments.[8] Gaming tax in the Netherlands is structured as follows. A provider of games of chance established in the Netherlands is subject to gaming tax. The domestic provider is taxed on the balance between the stakes received and the prizes paid-out to the players. If the prizes are paid-out by someone other than the provider, then gaming tax is calculated on the amount received by the provider for organizing the poker tournament. The Netherlands makes no distinction as to whether the provider also participates in the game. However, losses incurred by the provider in one period may be set-off against the profit in a subsequent period.
Winnings accrued by a domestic or foreign participant in a domestic live poker tournament are not subject to gaming tax. However, this is not the position if a Dutch-resident player participates in a foreign poker tournament. The player’s gross winnings received from foreign tournaments are subject to Dutch gaming tax. The buy-in paid by the poker player is not deductable from the taxable amount when calculating the taxable base.
The percentage of gaming tax also differs from country to country. In the Netherlands the rate is 29%. England, Belgium and Germany apply a progressive rate that increases in accordance with the increase in the taxable amount. For example, the lowest rate of Gaming Duty in England is 15%. This can increase up to 50% of the taxable amount. In Germany the base rate is 50% with a further additional levy of between 15-20%. The resultant outcome is a maximum gaming tax of 70%. In Belgium the rate is slightly lower, where the applicable gaming tax rate is 33%, provided that the taxable amount does not exceed EUR 1,360,000. Any excess over and above that amount is subject to 44% gaming tax.
Remote poker
It can clearly be seen that the tax legislation in the Netherlands deviates enormously from the rest, imposing 29% gaming tax on the winnings of Dutch residents participating in live poker tournaments abroad. This same tax levy also applies to the earnings derived by a Dutch poker player from internet poker. Players incur a gaming tax liability of 29% on the amount of their winnings less the amount of the stake. Neither Germany nor Belgium recognizes any specific form of gaming tax on internet poker. German and Belgian remote players are not personally taxed and, because there are no providers of remote poker established in those countries, the hosts of the sites visited by German and Belgian players also do not incur any tax liability in those countries.
Tax legislation in England and in Malta does allow for gaming tax to be imposed on providers of remote poker. However, these countries do not impose levies on the winnings of the individual players.
In England, all remote gaming operators licensed by the British Gambling Commission, or providers of remote gambling from facilities established in England, are liable for remote gaming duty.[9] This duty is also imposed on illegal remote gaming, the provider being liable for the duty payable. Remote gaming duty is calculated at 15% of the remote gaming provider’s profits at the end of each accounting period. This is the difference between stakes and payments due for taking part in remote gaming, less the amounts that the operator has paid-out as winnings during the accounting period.
In Malta both the providers and the promoters of remote gaming are required to hold the requisite license. That license is also used to determine the taxation applicable.[10] Operators managing their own risk in repetitive games such as casino-type games, for example poker, are subject to a tax liability of EUR 7,000 per month. Operators earning a commission for promoting remote gaming are also liable to taxation. Gaming tax for promoting remote gaming is charged at the rate of 5% calculated on the real income.
Closing
We can conclude that in comparison to England, Germany, Belgium and Malta, the tax on games of chance in the Netherlands is considerable, given that players pay 29% gaming tax on their winnings from either live poker tournaments abroad or from remote poker. As a consequence, the large group of active and successful poker players in the Netherlands has demonstrated an increasing desire to emigrate to Malta, in order to play poker in a more tax-favorable climate. If the Netherlands’ Supreme Court will review its opinion and at some stage in the near future will indeed rule that poker is not a game of chance, the Netherlands will again distinguish itself within Europe, and in all likelihood will introduce radical changes for the tax treatment of poker.
Written by
mr. F.M.M. Duynstee[1]
R.J. Jongeneel[2]
[1] Mr. F. (Frans) M.M. Duynstee, partner at VMW Taxand, Amsterdam
[2] R. (Roos). J. Jongeneel, junior associate at VMW Taxand, Amsterdam
[3] District Court of the Hague, 09/867520-08, LJN BN0013
[4] Netherlands Supreme Court, 3 March 1998, LJN ZD0952
[5] Spielbankgesetz NRW- SpielbG NRW
[6] Article 43 thru 74 ‘Wetboek van de met de inkomstenbelastingen gelijkgestelde belastingen’(WGB)
[7] Notice 453: Gaming Duty
[8] Betting and Gaming Tax Act
[9] Notice 455: Remote Gaming Duty
[10] Remote Gaming Regulation, 2004
