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The Dutch internet gambling tax: a game of bluff?

May 7, 2009 2009

Frans Duynstee and Igor Groenwegen, tax lawyers at Van Mens & Wisselink N.V., discuss the newly ammended Dutch Gaming Tax Act and the implications for online gaming.

This article was previously published in the Spring 2009 edition of ‘European Gaming Lawyer’. The authors can be contacted at gaming @ vmw.nl

An amendment to the Betting and Gaming Tax Act concerning online gambling came into force on 3 October 2008. This amendment gives rise to a great many questions. It appears that the Legislature wishes to implement a tax that is specifically geared towards illegal activities. It also appears that this amended gaming tax is effectively difficult to put into practice, particularly, when it comes to determine who the actual taxpayer is. Moreover, it is quite conceivable that this amendment may be in contravention of the EC Treaty Additionally, the question raises to what extent the Tax Treaties and the Double Taxation (Avoidance) Decree 2001 provide for tools to prevent double taxation. In short, there is sufficient food for thought.

Rules of Play

In accordance with article 1 of the Betting and Gaming Tax Act, insofar as it is of significance here, gaming tax is levied on:


b). those providing the opportunity to participate in domestic online games of chance;


e). the prize winners of online foreign games of chance residing in or established within the Kingdom of the Netherlands.

29% gaming tax is levied, per period, on the bets received less the prizes made available (the host’s gross gaming yield) by those hosting the domestic online games of chance. On the basis of article 5a of the Betting and Gaming Tax Act, the host may set-off any losses incurred in one period against any gains earned in subsequent periods.

Prize winners of foreign online games of chance residing in the Netherlands are liable for a gaming tax at a rate of 29% , insofar as the balance between the winnings taken during that month and the bets placed during that month is positive. There is no tax liability if the balance is less than nil. The fact that there is no possibility to set-off losses in subsequent periods whilst a set-off is possible with respect to domestic online gambling appears to be in contravention of the EC Treaty.

Put succinctly: winners of prizes enjoyed from domestic online gambling are not liable for gaming tax. Hosts are not liable for tax if they provide the opportunity to participate in foreign online gambling. The consequence of this could be that players will seek to participate in national online gambling whilst hosts will strive to provide foreign online gambling to avoid the gaming tax in the Netherlands.

E-gaming vs. E-commerce

Concerning online gaming, a distinction ought to be made between e-gaming and e-commerce. Whereas e-gaming is considered as online games of chance on which the new rules apply, e-commerce is considered as ‘regular’ gaming on which the common rules apply. In practice, however, both categories are difficult to distinct from each other. For instance, recent case law (Betfair, Council of State May 14, 2008, LJN BD 1483 and De Lotto/Ladbrokes, Supreme Court June 13, 2008, LJN BC8970) shows that if internet is used as medium to participate in games of chance, these games of chance will be considered as e-gaming. When internet is used as a communication / sales channel for an off line game of chance, this is considered as e-commerce by the Dutch Tax Authorities. We are of the opinion that the red line which is given by the Government between e-gaming and e-commerce is quite thin. We feel that the argument used for e-commerce, i.e. the sales channel, is rather a political instrument than a fiscal instrument. Due to the thin red line between e-commerce and e-gaming, we expect that in the near future case law will be initiated.

Domestic vs. Foreign

Theoretically speaking the levying of tax as explained above can be considered relatively straightforward. In practice, the terms used raise the following additional questions, such as: What is understood under domestic and foreign games of chance? When is a host deemed to be the party providing an opportunity to participate in foreign games of chance?

Foreign games of chance are all games of chance that are not regarded as domestic games of chance. A game of chance is deemed a domestic game of chance if it is operated by natural persons or entities , of which one or more reside or are established in the Netherlands. Should an online game of chance be jointly hosted by an entity established in the Netherlands and an entity established abroad, which entity is liable for tax? The State Secretary has supplied with us a number of tools with which to asses whether or not we can speak of a domestic game of chance, namely:

1. the language of the host’s website;

2. the web address of the host’s website;

3. the “provider” of the host’s website;

4. all other information referred to on the host’s website.

Bad beat

The State Secretary unexpectedly adopted a completely different standpoint in the additional Statement of Defence on national games of chance. In his written response to the questions posed by the SP (Socialist Party) he stated:

“Games of chance accessible via the internet in the Netherlands are deemed to be domestic games of chance.”

This is very surprising. In effect, it means that the Dutch gaming tax will be imposed on all foreign online gaming operators if the games of chance provided are accessible in the Netherlands! It appears that the State Secretary based his statement on the Supreme Court Judgment dated 18 February 2005 no. C03/306HR. This judgment ruled on the applicability of the Betting and Gaming Act. The key question here was: to what extent does the online provision of the games of chance hosted by a website that also targets the Netherlands, fall under the “provision of opportunity” as is referred to in article 1, sub a, of the Betting and Gaming Act. The Supreme Court ruled that “provision of opportunity” exists as is laid down in article 1, sub a, of that Act if the Dutch participants have direct access to the game via their computers. Although the concept “provision of opportunity” also exists in the Betting and Gaming Tax Act, this Act, contrary to the Betting and Gaming Act, specifically defines the concept of the domestic games of chance. The accuracy of the standpoint taken by the State Secretary is thus open to doubt but it is, in our opinion, a building block for a reasonably arguable position.

It gets even stranger: in less than two months after the State Secretary of Finance made his statements in the Senate, the revised explanatory notes to the tax return form for Gaming Tax and the new “Gaming Tax” brochure were presented. This brochure and the explanatory notes use a different criterion as opposed to the criterion used by the State Secretary in the Senate. Evidently the Tax Authorities do not feel that the accessibility of a site from the Netherlands is relevant for determining whether a game of chance is domestic or not. Quite frankly, this was recently confirmed by a tax inspector of the Gaming Tax Department from the Dutch Tax Authorities. In addition, it is most strange that in the same brochure and explanatory notes no mention is made of the apparently illegality of online gambling while much attention was paid to this point during the parliamentary debate. What is more, this is one of the reasons to implement this legislative amendment.


As set out above, it is unclear whether the fortunate prize-winners resident in the Netherlands are obliged to file a gaming tax return. For instance, if a Dutch resident enjoys winnings earned from foreign online games of chance in a calendar month in which foreign gaming tax is imposed, to what extent can double taxation be avoided?

Art. 52 of the Unilateral Double Taxation Avoidance Decree 2001 states that this group of taxpayers is exempted from gaming tax if the prize is “subject to a similar tax imposed by another country or another ‘Power’ The taxpayers enjoying prizes derived from foreign games of chance must prove that they are i) liable for ii) a similar tax on the prize in the country of origin before they may rely on an exemption from the gaming tax. How can these two points be proved?

With respect to the tax liability, reference may simply be made to the relevant provisions in the country of origin of the prize, which provisions should be substantiated by providing i) an assessment or ii) other ‘in principle’ authenticated documents which clearly show that the prize to be exempted is subject to a similar tax. We hold the view that authenticated documents are, inter alia, understood to mean: the submission of a statement from the foreign tax authorities, authenticated by a local civil-law notary, declaring that a tax is imposed on the games of chance.

The Tax Authorities make two references on the exemption to avoid double taxation: the Gaming Tax Brochure previously referred to and the explanatory notes to the Gaming Tax Return. It is worth noting that the brochure and the explanatory notes to the gaming tax return contradict each other with respect to the section covering the exemption from gaming tax. The brochure clearly states that it must be made plausible that the prize won is subject to a foreign tax that is similar to the Dutch gaming tax, whereas the explanatory notes state that proof of payment must be submitted from which it is obvious that tax has actually been paid abroad in order to qualify for exemption. This statement is clearly in contravention of the current doctrine as discussed above. Have the Tax Authorities taken a new path with respect to the interpretation given to the tax liability requirement in tax law?

We can only guess at the reasons for this amendment. Moreover, we wonder whether it is feasible that proof of payment for tax paid abroad can be furnished for the gaming tax. There is a real possibility that gaming tax is imposed abroad at the level of the host, as the host is deemed to be a domestic online gaming taxpayer in that country. It is also likely that the gaming tax base of the host differs from that of the prize-winner (compare the Netherlands: the surplus balance of the bets received less the winnings paid out to the players). We feel that the request made by the Tax Authorities to furnish proof of payment in cases as outlined above, reaches too far and is practically impossible.

It may also be questioned that the Dutch Tax Authorities state in the explanatory notes that exemption is always applicable if the prizes originate from Germany or Belgium. When is there actually a question of a similar gaming tax? The Opinion and Additional Report given by the Council of State on the amendment to the gaming tax for online games of chance contains an overview which clearly puts out that in Belgium and Germany tax is levied on the bets placed. The methods applied in both countries differ a great deal from the method used in the Netherlands. If Belgium and Germany are deemed to impose a similar tax, we could conclude that this means that all types of gaming tax imposed under another Power qualify as a similar tax. Consequently, a successful claim for exemption from the gaming tax will follow, provided that the tax liability has been made plausible. The latter will encourage players to search for hosts of foreign games of chance that are established in Germany, Belgium or another country in which gaming tax is imposed at a low rate.

In the context of exemption from the gaming tax, we comment that it is possible that double taxation will occur at the level of the host if the State Secretary’s view is upheld, to whit, that a host established abroad falls under the Dutch Gaming Tax if the host’s website is freely accessible to players resident in the Netherlands. Hosts do not qualify for exemption from gaming tax, given that the exemption from gaming tax only applies to the prize-winners of foreign games of chance. It goes without saying that concurrence is sought in the tax treaties concluded by the Netherlands. However, the problem arising with respect to such bilateral agreements is that, generally speaking, these agreements only cover income tax, wage tax, corporate tax and dividend tax. Gaming tax is not referred to in the tax treaties, which means that double taxation could occur because the host enjoys a source income in the Netherlands and in the country of establishment. We are, in any event, unclear as to how double taxation can be avoided. In all probability, the host will always get the short end of the stick.

Game Tip

In the parliamentary debate the principle of tax neutrality was invoked with respect to the levying of tax on the prohibited online games of chance. Under European Law, the tax neutrality principle implies that no distinction may be made in the tax treatment of legal and illegal activities, provided that the possibility of competition exists between these two activities.

In fact, the neutrality principle may not be invoked if there is only one activity, e.g. legal, or as the case may be, illegal. In our view, the Legislator is way off target by invoking the neutrality principle because in the Netherlands, online games of chance have been completely forbidden and there is thus no legal activity that needs to be safeguarded. Incidentally, the State Secretary has not made any explicit statement in connection with this inaccuracy. His reference to the taxation of crimes subject to income tax in defence of his choice for the neutrality principle is ill-chosen. Ill-chosen because the income tax is a generic tax, pertaining not only to apparently illegal activities, whilst the gaming tax on online games of chance, in the eyes of the State Secretary, pertains only to illegal activities.

‘Rien ne va plus’

What now? The Government moves rather inconsistent. On the one hand, the apparent illegality of online gaming was exhaustively dealt with in the parliamentary debate, while no mention is made of illegality in the Gaming Tax Brochure 2008. On the other hand, during the Debate it was stated that players resident in the Netherlands actually never have to file a gaming tax return, while the Gaming Tax Brochure 2008 states that this must be done. At the same time it is unclear how in these cases, inherent double taxation can be avoided. Moreover, the difference in tax burden that arises as a result of shifting the burden from the host to the player (in the case of foreign online games of chance) is not justifiable, certainly not from a European perspective. The players and hosts must learn to live with these uncertainties, but luckily they are experienced at this game! It is a matter of probability / risk-taking.


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