A player wins Swedish online poker tax ruling

A ruling has gone in Swedish poker player’s favour, freeing him from paying taxes on a portion of his online poker winnings. The verdict came against the Swedish tax agency Skatteverket.

The county administrative court (Länsrätten) in Östergoötland ruled that Sargon Rüya did not have to pay Swedish taxes on the 650,000 kronor ($80,900) he won playing online poker on a site based in the Isle of Man, reports the Östgöta Correspondenten newspaper. It was reported that Rüya was still liable for paying taxes on winnings earned while playing on a site based in Monaco. The difference in tax treatment stems from European Union rules stipulating that winnings from games such as poker are free from taxes within the EU.

According to the newspaper, the Swedish tax authority Skatteverket had originally demanded that Sargon Rüya pay tax on his winnings because the Isle of Man is not part of the EU but Rüya was able to prove the company was operated by a Cypriot parent and the earnings were therefore from within the EU.

For its part, the Court went a step further and said that Skatteverket could not place the burden of proof of where foreign companies operations are based on an individual in order to collect tax.

Dutch bankers oppose policing of Internet gambling sites

A move to involve the banking industry in enforcing a Dutch-style UIGEA proposal is facing opposition from the representatives of the Netherlands Bankers Association (NVB).

The Online Gambling Act was countered recently in a formal statement from the Association, protesting against Dutch Justice Minister Hirsch Ballin’s plan to curtail financial transactions.

The NVB told Ballin that his plan to use Dutch financial institutions to police online poker and Internet gambling sites is neither practical nor legal.

NVB spokesman Michel Noordermeer stated: “The Minister wants us to become an extension of the justice system, but that is not the role of the banks.” Noordermeer asserted that EU rules dictated that banks continue to serve online gambling sites, and that the Dutch government should prosecute an Internet casino operator before trying to ask the banks to enforce a questionable law. He said the Betting and Gaming Act, in conjunction with EU law, would almost certainly preclude the Dutch plan.

A Ministry spokesperson dismissed the NVB’s comments saying: “Justice bases itself on Dutch law in fighting illegal Internet gaming and there is no room for free choice on the side of the banks. European law has no influence on this.” The matter remains under consideration at several levels of Holland’s government.

France may pass a law authorising online gambling by end of 2009

French Budget Minister Eric Woerth has reportedly said a law authorising online gambling will probably be passed by the end of 2009.

The French government is yet to decide on how to tax the online companies, Woerth said. It is being said that the government currently gets €5bn from levies on private casino operators and a state-owned company with a monopoly on lotteries and sports betting.

The draft bill designed to open the gambling market to competition and legalise online betting was drawn up to comply with EU anti-monopoly rules.

According to another report, information portal Online Casino Topic reports that the owners of French online gambling sites are getting set to start fighting French opponents who do not want them to launch online casino and poker websites.

In a development being attributed to Patrick Partouche of the French casino company Partouche Group by a report from swisspoker.ch, it is being said that the company is moving ahead rapidly with a Gibraltar licence initiative. He has pointed out that there are many Internet gaming sites like Unibet and Bwin that are offering the French public online action regardless of the current law, which is in the process of being changed, citing EU law precedence. Consequently, he intends to position his enterprise to compete without awaiting the evolution of the slow French bureaucratic process to open the market.

Close-up on poker regime in France

Poker status in France has been ambiguous for a long time but luckily for operators the future looks brighter everyday.

Legal framework

French courts distinguish between games of skill and games of chance. The prohibition is focused on games of chance. There are two primary pieces of legislation in this area: one on lotteries and the other one, on games of chance . The 1836 Act prohibits lotteries while the 1983 Act is focused on games of chance. It is not always easy to determine the precise field of each law but French courts take the view that poker is covered by the 1983 Act. As elsewhere in the world, whether poker is game of skill rather than chance is a hot topic.

Poker is usually considered as a game of chance by courts. The question whether skill prevails over chance in games of poker is currently much discussed. But even if a judge were to endorse the conclusions of a mathematical study proving that skill prevails on chance, it is not obvious that he or she would conclude that poker is not a game of chance. On the contrary, the Supreme Court has already held that one specific game was indeed a game of chance, despite the fact that in this game skill prevailed over chance. The determining factor was there were significant stakes; accordingly, the game was to be prohibited as a game of chance.

Under French law, the existence of a stake to play is crucial. If there is no stake – for example, in a tournament without real money – the game itself is legal. “Play money” poker is thus acceptable in French law, though according to a 1971 criminal case even a minimum stake of one French franc (€0.15) was held to be sufficient to justify the prohibition of a game. While there is no case law on the subject, a game played without stakes but requiring a minimum amount of money for registration (for example, a tournament) should – in theory at least – be legal.
In 2007, a new Act has been adopted to reinforce the prohibition against unlawful online games of chance, especially against poker. Penalties have been increased: infringements may be punished with penalties going up to three years’ imprisonment and with fines of €45,000. These sanctions are increased to seven years in prison and a fine of €100,000 when the infringements are committed by organised groups. Moreover, the advertisement of forbidden games of chance is a new infringement punished with fines of €30,000 or four times the advertising expenses.

Up until recently, poker could only be organised in very restrictive venues and occasions, but since the European Commission started to examine France’s gambling regime many changes are to happen.

Latest changes

Since December 2006, brick and mortar casinos are entitled to organise poker games in their premises. Prior to that, poker was only permissible – according to the law – in dedicated, state-sanctioned “gaming circles”. The amended 1959 decree, establishes a distinction between games ‘of counterparts’ such as casino stud poker and games ‘of circle’ such as Texas Hold’em. Both though are expressly authorised.”

More changes were yet to come after the European Commission launched an infringement procedure against the French gambling policy, specifically regarding sports betting, and the French supreme also started to question France’s gambling policy.

First, the government decided to suspend all pursuits against EU licensed online operators whilst it was reflecting over a draft bill authorising online gambling. It soon became clear that the scope of the future market opening was going to include online poker.

The first licences should be granted to operators by the end of 2009 or at the beginning of 2010.

Even if this decision to legalise online poker has been welcomed by many operators, French brick and mortar casinos opposed several reservations.Their gross revenue has drastically decreased over the last year and the three main casino groups explain it by several facts. One reason is that while offline casinos are still heavily taxed by the state, online operators are free to exploit the French market without any burden, and this represents an unfair competition. Another reason is the blanket ban on smoking in public places since January 2008, which caused casino attendance to drop (by 15 to 20% since June).

This is why on 19 November; French casino groups have called on the government to help them to through this crisis. They have asked for tax relief until the new gambling regime was in place. In response, Michèle Alliot-Marie, French Home affair secretary, has promised, among other measures, to make it easier for casinos to organise poker tournaments.

Casinos will be able to organise Poker tournaments in other premises than their own, and the threshold of 100 tournaments per year will be removed.

Under the influences of the European Commission, of poker’s popularity and of the recent crisis, poker regime has dramatically changed in France in two years time. Even if one can be hopeful about its evolution in the following months, operators will need to monitor closely the implementation measures that the new regime will reveal.

Source: Inside Poker

Implementation of the Unlawful Internet Gambling Enforcement Act is becoming reality

On 12th November 2008, after two years of stand by, the US Department of the Treasury along with the Federal Reserve Board finally announced the publication of the final rules ensuring the implementation of the Unlawful Internet Gambling Enforcement Act (UIGEA).

The UIGEA was enacted to stop the development of illegal internet gambling websites by means of blocking money transfers between unlawful gambling operators and consumers. Indeed, the UIGEA prohibits any person engaged in the business of betting or wagering (as defined in the Act) from knowingly accepting payments generated by unlawful internet gambling activities while financial firms are required to establish policies and procedures “reasonably” designed to identify and block or prevent such “restricted transactions”.

A final set of implementation rules was necessary in order to enforce the UIGEA. After a first draft in 2007, received with criticism by gambling law specialists, the US Department of the Treasury and the Federal Reserve Board proposed new regulations which draw up the regulatory enforcement framework.

However, the recently announced regulations are quite similar to the initial proposal, especially considering the standing committee’s decision not to define the exact meaning of “unlawful internet gambling” for the purposes of this act. Asserting that “the underlying patchwork legal framework [of gambling] does not lend itself to a single regulatory definition of unlawful Internet gambling”, drafters concluded that providing further details on what is “lawful” “would not be practical” with regards to eventual exemption from the Act (1).

In addition, the Department of the Treasury in accordance with the Department of Justice rejected the suggestion to set up a “blacklist” of unlawful internet gambling websites. Accordingly, such a measure “would not be effective or efficient” as long as gambling operators will be able to “change their payment information with relative ease and speed” and as a result “such a list would be outdated quickly.”

Instead, banks and other payment service providers will have to put into practice a “due diligence process” before opening new customers’ accounts or over account-maintenance procedure in order to control whether the commercial customer originates or receives restricted transactions through the customer relationship or not. For example, if a bank suspects a commercial customer to present more than a “minimal risk” of engaging in an Internet gambling business, the bank will have to ask for further documentation to ascertain that the Internet gambling business is lawful.

According to the Department of the Treasury the implementation of the Act will cost approximately $88,5m in staff costs, whereas further “unquantified costs” such as training, auditing and legal advice are also expected. The final bill could exceed 100m$ only for the first year and the total annual cost to regulated entities to maintain the policies and procedures will be approximately $3,3m.

Interest groups such as the American Banking Association or the Financial Services Roundtable are particularly reluctant to the implementation of the new provisions in a time of economic crisis. In an open letter addressed to US Secretary of the Treasury, Congressman Barney Frank demonstrated that enforcing the new rules at this time would “burden the financial services industry”.

While American government is enforcing the UIGEA, the European Commission is wondering about the opportunity of launching legal proceedings against United States before the World Trade Organization, considering that non American operators are specifically penalized by the implementation of the UIGEA in a restrictive and discriminatory way (2) . The European Commission should publish the conclusion of their formal investigation by the end of the year.

Despite criticisms, the final rules will officially come into effect on 19th of January 2009 and all payment service providers will have until December 2009 to comply with the new provisions.

[1] “Prohibition on funding of unlawful Internet”, Federal Register Notice, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20081112a1.pdf

(2) The US Department of Justice is suspected of violating international trade law by threatening and pressing criminal prosecutions, forfeitures and other enforcement actions against foreign online gaming operators while allowing domestic US online gaming operators.

Sources:

Agencies Issue Final Rule to Implement Unlawful Internet Gambling Enforcement Act”, the Federal Reserve, Joint Press release, November, 12, 2008, http://www.federalreserve.gov/newsevent/

“Prohibition on funding of unlawful Internet”, Federal Register Notice, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20081112a1.pdf

“Prohibition on funding of unlawful Internet”, regulations to the Unlawful Internet Gambling Enforcement Act ‘s proposal, http://www.treas.gov/press/releases/reports/noticeofproposedrule.pdf

“UIGEA Rules To Take Effect Hours Before Obama Inauguration”, James Kilsby, November, 14, 2008, published on http://gamblingcompliance.com/

“EU gambling firms see WTO case coming against U.S”, Doug Palmer (Reuters), September, 18, 2008, http://www.reuters.com/

“EU online gaming industry challenges US with charge of prosecutorial discrimination”, Remote Gambling Association, Press release, Brussels, 20 December, 2007