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GBGA launches second legal challenge against new UK tax regime

21st October 2014 7:48 am GMT

The Gibraltar Betting and Gaming Association (GBGA) has filed a second legal challenge against the UK’s impending introduction of its new gambling licensing regime, this time challenging the 15 per cent point of consumption tax rate.

A previous challenge was rejected earlier this month, after the UK High Court found that the GBGA had failed to establish that the new regime was unlawful under European Union or domestic law.

The new judicial review focuses on the tax regime to be introduced, which imposes gambling excise duty liabilities on remote gambling operators on a place of consumption basis.

The GBGA claims that the new tax regime is unlawful as it breaches Article 56 of the Treaty on the Functioning of the European Union (TFEU) in that it amounts to a restriction on the free movement of services.

“That restriction cannot be justified under Article 52 TFEU, since the new tax regime has been introduced in pursuit of an illegitimate aim,” said the GBGA lawyers at Olswang in its filing. “The main aim of the new tax regime is to discourage remote gambling operators from moving to foreign jurisdictions and offering their services to UK consumers from those jurisdictions.
 
“This aim is contrary to the very essence of the EU rights of freedom of establishment and freedom to provide services guaranteed by Article 56 TFEU.”

The GBGA also claims that the regime is discriminatory since it has the consequence of “imposing differential burdens without justification on remote gambling operators providing services within the European Union on the basis of the Member State in which they are located and/or the particular service(s) they provide.”

The GBGA has outline five main points as part of its new judicial review.

Firstly, that a challenge on taxation is the best means to protect consumers. The association believes that responsible foreign operators would suffer double taxation, putting them at a commercial disadvantage not just to UK operators but particularly to “rogue operators” over which the Gambling Commission has no abilities to enforce its regulations.

“If responsible foreign operators are forced to raise prices (ie offer less favourable odds or a high rake], it is inevitable that many consumers will move to companies with no regulation and lower overheads,” said the GBGA. “Rogue operators will be beyond reach of UK law and consumers will face increased risks of fraud, non-payment and abuse.

Secondly, the GBGA believes that this is a case of “unparalleled constitutional importance” as it impacts on the provision of services between member states.

“This tax is a restriction on the provisions of services,” said the GBGA. “There are no equivalent precedents of the UK Government seeking to tax entities abroad in respect of the provision of services into the UK without going through the appropriate route of seeking harmonization through the EU. This is incompatible with Article 56.”

Thirdly, that this position on tax is not in the national interests of the UK.

“Whilst this tax applies to gambling companies, it does not apply to spread betting organisations,” it continued. “Given European disquiet about tax and the City, introducing a contradictory tax on the gambling industry weakens the UK’s position on challenging the retention of the FTT (financial transaction tax).”

Fourthly, that the GBGA’s position is stronger because of the judgment on the new licensing regime.

The association cited Justice Green in his decision earlier this month who stated that raising revenues are not a justified reason under Article 56.

“The fact is that this tax regime has no legitimate purpose,” said the GBGA. “Moreover, the tax is discriminatory. European law supports our position.”

Finally, the GBGA claims that the Treasury’s position is wrong and that this is not a matter of internal taxation designed purely to raise revenues.

“The Government says this tax ensures ‘respect for fiscal sovereignty’ and is essential for the ‘coherence of UK tax authority’,” said the GBGA. “We believe this means their real aim is to ensure that UK operators in this market are favoured, at the expense of law abiding and responsible operators outside of the UK.

“Given the risk to consumers, we have asked for an expedited hearing,” the association added.

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