Berlin Court Casts Doubt Over Online Lottery Ban

published on GamblingCompliance, September 26th, 2008 by James Kilsby, GamblingCompliance Ltd.

A Berlin court ruling has boosted the hopes of private lottery distributors in Germany seeking protection from a ban on online lottery sales scheduled to take effect in January of next year, legal observers agree.

A Berlin administrative court this week upheld a challenge, launched by private lottery mediator Tipp24, to local lottery laws that were introduced in the wake of Germany’s Interstate Gambling Treaty that came into effect in January.

The Interstate Treaty in itself introduced stringent restrictions for Germany’s state-owned lottery companies – including tougher advertising regulations and a ban on lottery company directors’ salaries being set according to lottery revenues, on top of the total ban on the sale of lottery products over the internet that will come into effect in January 2009. However, the treaty also empowered authorities in each of Germany’s 16 states to introduce further legislation in accordance with the treaty’s principals.

The Berlin court this week ruled that Berlin’s law banning the state lottery from paying commissions to private lottery distributors such as Tipp24 was constitutionally invalid, as well as finding that Tipp24 did not require special permission from the state in order to offer its services as a lottery distributor in Berlin.

But more significant for the likes of Tipp24 and competitor JAXX, according to Tipp24’s director of investor relations Frank Hoffmann, was the court’s finding that the online lottery ban constituted an unjustified restriction on the free movement of services as guaranteed under German and EU law.

“This is the most important thing for us,” Hoffmann told GamblingCompliance. “The court’s ruling essentially means that the Interstate Gambling Treaty will not apply to Tipp24’s activities in Berlin.”

Tipp24 and JAXX continue to derive significant amounts of revenue from their online lottery sales businesses, and are lobbying fiercely against the ban on online lottery sales that would significantly undermine their business operations in Germany if it took effect as scheduled.

In an interim results report released earlier this year, Tipp24 acknowledged that the Interstate Treaty “and subsequent legislation passed on the basis of the [treaty] would mean the complete elimination of Tipp24’s current business basis in Germany from 1 January 2009 onwards.”

Unsurprisingly, both Tipp24 and JAXX have indicated their intentions to seek legal protection from the online ban once it comes into force, and they believe the Berlin court’s verdict boosts the prospects of them obtaining preliminary injunctions against the ban from further state courts come January.

“If we need to seek preliminary protection [from the prohibition on lottery sales via the internet] in other states, then the courts there will be certain to look at this decision from Berlin,” Hoffmann said.

In a press statement released yesterday, JAXX chief executive Rainer Jacken said the Berlin verdict raised further question marks over the enforceability of the German Interstate Treaty as it affects private lottery companies. “This precedent will certainly strengthen our position in other legal procedures,” Jacken said.

Claus Hambach, founding partner of Munich-based law firm Hambach & Hambach, agreed that the Berlin decision raised significant doubts as to whether the online lottery ban could now be brought in against the likes of Tipp24 and JAXX. He added, however, that the decision would only directly affect the German lottery market and that the judge’s ruling could not be applied to other sectors, such as online sports betting, blighted by the Interstate Treaty’s restrictive provisions.

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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)

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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