David Clifton: Licensing Expert – GBGA Tax Ruling… Are all bets now off in Gibraltar?

David Clifton: Licensing Expert – GBGA Tax Ruling… Are all bets now off in Gibraltar?

by 16.06.2017 0 comments

Almost a year ago, the Government of Gibraltar issued a statement following the Brexit vote in which it said that it had been working closely with the remote gambling industry in Gibraltar following that vote and had assured them of its support and vision for the sector in the short, medium and long term. It went on to confirm that the sector remained strongly committed to its Gibraltar operations and that business would continue as usual.

One cannot help but wonder how long that optimism will last, not because of the additional uncertainties created by the recent UK General Election result, but instead by reason of the recent judgment of the Court of Justice of the European Union (“CJEU”) in relation to the legal challenge brought by the Gibraltar Betting and Gaming Association (“GBGA”) against the UK’s place of consumption gambling tax regime that came into force on 1 December 2014.

The CJEU’s ruling that “the provision of services by operators established in Gibraltar to persons established in the UK constitutes, as a matter of EU law, a situation confined in all respects within a single Member State”  came as no surprise given an earlier finding to similar effect by a CJEU Advocate General in January. However, it serves to seriously (if not fatally) undermine the GBGA’s claim that gambling operators based in Gibraltar (but licensed by the Gambling Commission in Great Britain) should not be subject to gambling tax obligations in the UK because they constitute:

The GBGA has also contended that such taxes cannot be justified by the objectives claimed by the UK Government, which are essentially of an economic nature and, as a consequence, it maintains that the new tax regime is incompatible with the EU Treaty.

However, in a detailed judgment published on 13 June, involving deep complexities of EU Treaty provisions and previously decided case-law, the CJEU has effectively put paid to the force of those arguments.

Back in January, following publication of the Advocate General’s Opinion, Peter Howitt, the CEO of the GBGA expressed his members’ disappointment but said that they “continue to believe that the gambling duty applied by the UK government to operators out of the jurisdiction, in circumstances where the customer may not be in the UK when they gamble or even a UK resident, is a disproportionate restriction on operators”.

As I write this piece, no further statement has been published by or on behalf of the GBGA which must now be facing an expectation that the High Court in London will find against it as and when the case reverts to it for its judgment, to which the CJEU ruling will be applied.

The Spanish newspaper, El País, will have provided little comfort, commenting that the judgment has “deepened the crisis of the business model that has driven growth for Gibraltar’s online gambling industry. In the last two decades, gambling operators have flourished thanks to the favourable tax regime in the overseas territory. If Brexit created an initial sense of unease, there is palpable uncertainty now with regard to the 3,252 direct jobs created by the 33 Gibraltar-based gambling companies that now face the prospect of losing competitiveness to other desirable locations, such as Malta or the Isle of Man”.

By way of contrast, the Government of Gibraltar has once again struck an optimistic note, stating that “in normal circumstances, HM Government of Gibraltar would have been disappointed with such a ruling, as a result of Brexit and the commitments already made by the UK Government to Gibraltar in relation to access to the UK market” but that it nevertheless “does not consider that the judgment will have any significant effect, whether on the online gaming sector or more generally”. In what many may consider to be excessive optimism, it concludes by suggesting that “indeed, the judgment may provide a different, and strengthened, perspective on Gibraltar’s position in the Brexit negotiations, as part of the same UK single market for the purposes of EU Law”. 

I will not be alone in wishing well all operators based in Gibraltar, particularly given the disclosure at the end of March that EU draft guidelines for Brexit negotiations would effectively give Spain a veto over Gibraltar’s future. Its 10% corporate tax rate, compared with 19% in the UK and 25% in Spain, coupled with high AML standards, should continue to make the territory an attractive location for businesses but gambling operators based there will no longer be able to benefit from European law arguments regarding access to EU markets and will inevitably face increasing costs if Spain closes its border, raising serious viability questions. 888 Holdings may not be the only Gibraltar-based operator considering a relocation of its main base to Malta, in order to maintain a guaranteed free cross-border movement of people, goods, services and capital in a post-Brexit Europe.

A year ago, the GBGA published its own statement. It said: “At the moment and for the foreseeable future there is no change to the existing legal and political framework that our operators work within. We also note that European countries already have widely different regulatory regimes and many require our operators to have local licences – the impact on our members is therefore likely to be minimal. Periods of wide-spread political uncertainty highlight the need to be based in a territory that supports your business and sector at the highest level. We have a very supportive government and regulators. We have access to a wealth of human talent and experience in online betting and gaming.  The UK and EU political crisis makes us keenly aware why Gibraltar remains a great place to do European and international trade. Gibraltar is an internationally recognised success story and we intend to keep it that way.

I, for one, hope that the CJEU judgment and what is, in my view, an inevitable further blow when the High Court issues its own judgment, will not dampen that obvious enthusiasm to maintain the success of the online gambling industry in Gibraltar for many years to come.


David Clifton – Director – Clifton Davies Consultancy Limited


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