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Affiliates Implicated In Dutch Internet Gambling Tax Mystery

September 26, 2008 2008

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


[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


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