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)

—

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

Germany: Interstate Treaty on Gambling: implications

published on worldonlinegamblinglawreport (e-comlaw.com)
Volume 7 Issue 8 August 2008
by Dr. Wulf Hambach, Partner and Marco Erler, Associate

Volume 7 Issue 8 August 2008
Germany: Interstate Treaty on Gambling: implications

The Interstate Treaty on Gambling (ITG) has imposed bans on advertising lotteries using the internet, television or telephone marketing. As well as causing problems for online operators, this has caused problems for state run lottery shows in Germany. Dr. Wulf Hambach and Marco Erler, of Hambach and Hambach, discuss recent court cases involving the ITG and the effect on those involved.

Please read the complete article in the enclosed pdf-document!

Private Betting Operator Granted German State Injunction

by James Kilsby, published on Gambling Compliance Ltd, August 26th, 2008

The High Administrative Court said last week that sports betting operator Happybet should be allowed to offer over-the-counter betting in Rhineland-Palatinate as the German state’s monopoly betting operator continues to be owned by three private sports federations rather than by the state itself.

The Interstate Gambling Treaty that came into force in January preserved the 16 German states’ monopolies over sports betting activities, “assuming that the risks associated with addiction can be controlled more effectively with the help of a state monopoly which is geared to combating addiction to games of chance and problematic gambling behaviour than by checking private organisers.”

But doubts have already been expressed over whether a monopoly could be upheld in Rhineland-Palatinate due to the fact that the betting monopoly is technically privately-owned, and particularly after the Federal Competition Authority, Germany’s anti-cartel watchdog, blocked a planned takeover of Rhineland-Palatinate GmbH by the state government last year.

The High Administrative Court’s decision applies only to operator Happybet, said Wulf Hambach, gaming law specialist at Munich-based firm Hambach & Hambach, but it will effectively open up the state’s entire sports betting market to private competition should the Court apply the same reasoning in more than 50 similar pending cases.

“Private betting shop operators in the whole state will see the opportunity from this and now look to open up their businesses,” Hambach said.

Rhineland-Palatinate authorities are faced with somewhat of a Catch 22 situation, he added, as the Federal Competition Authority (Bundeskartellamt) has made it clear the government will not be able to take short cuts to bring the public lottery company under state control.

“If they look to take the lottery company into state hands they risk breaking competition law; if not, then they are in violation of the Interstate Gambling Treaty,” said Hambach of Rhineland-Palatinate’s predicament. “But there is no way Rhineland-Palatinate can exclude other private operators if its betting monopoly is itself privately-operated.”

Other factors were at play in the High Administrative Court’s decision, Hambach added, including Rhineland-Palatinate’s recent record of compliance with the Interstate Treaty’s restrictive advertising measures.

Under the treaty, gambling advertising should be limited to offering just specific information on games, and should not be designed to entice Germans to gamble. But the High Administrative Court suggested that the Rhineland-Palatinate lottery company had violated this provision through recent promotional campaigns for sports betting products, in particular during the Euro 2008 football championships held earlier this summer.

While the state’s lottery ownership conundrum is unique in Germany, Hambach believes the court’s comments on advertising could resonate throughout the country. Already this year, German courts have ruled that lottery companies must further restrict their advertising practices in order to comply with the Interstate Treaty – the same questions could now be asked of sports betting, Hambach believes.

“How can you advertise without enticing? What does ‘informing the customer’ mean and how can you apply this in practice?” he asks rhetorically. “Of course, one state after another will break this provision.”

The Court said that Happybet could continue to operate in Rhineland-Palatinate, but resolved that the company would not be able to promote its services and would equally have to ensure compliance with the Interstate Treaty’s player protection requirements. Accordingly, Happybet must take steps to prevent minors and problem gamblers from betting, as well as issuing warnings about the dangers of gambling addiction.

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”.