Opinion: Dutch tax rates and fiscal neutrality

Dutch slot machines organisation, VAN, recently announced that it filed a complaint with the European Commission with respect to the proposed Remote Gaming Act. A reason for this complaint is that VAN is of the opinion that the proposed differentiation in tax rates under the Remote Gaming Act between licensed remote games of chance (20%) and land-based games of chance (29%) leads to a breach of the so-called fiscal neutrality principle.

The question is, however, whether the fiscal neutrality principle applies to a non-EU tax, such as the Dutch betting and gaming tax, and if so, whether licensed remote games of chance and land based games of chance are indeed similar services. Any breach of the fiscal neutrality principle may be justifiable in the instant case.

Remote Gambling Act

According to the Dutch government, a lower tax rate for remote operators is justified as this contributes to achieving the highest degree of channeling as possible. Also, lowering the tax rate for land-based gambling operators to a lower percentage will lead to a loss of tax revenues millions of Euros annually.

The principle of fiscal neutrality plays an important role in both the EU Law and the Dutch tax legislation. The EU principle of fiscal neutrality is derived from the principle of equality and further developed in jurisprudence of the European Court of Justice (CJEU) in relation to the EU VAT legislation.

The EU principle of fiscal neutrality aims to prevent any disruptions in economic transactions. The CJEU held in the The Rank Group cases that the principle of EU fiscal neutrality, for VAT purposes, must be interpreted as meaning that a difference in treatment of two transactions identical or similar from the point of view of the consumer and meeting the same needs of the consumer, is sufficient to establish an infringement of that principle, without actual existence of competition between the services in question being necessary.

Therefore, Member States can decide which gambling activities are exempted from VAT and which are not. However, once they have made that decision, they have to treat services that are similar, from the point of view of a typical consumer, in the same way.

This EU principle of fiscal neutrality however, does generally not apply to non-EU taxes, such as the betting and gaming tax as applicable in the Netherlands. Nonetheless, the principle as such has been recognised by the Dutch Supreme Court, as relating to betting and gaming tax. The question is what the exact scope of the national fiscal neutrality principle is.

Comparable examples

In accordance with the national principle of fiscal neutrality, it is required that comparable situations must not be treated differently and different situations must not be treated in the same way unless such treatment is objectively justified. There are several arguments to conclude that, considering the point of view of an average consumer, land based and online operations are not similar:

• the markets for land-based gambling and online gambling constitute two different markets;
• the experiences and perceptions of online gambling substantially differ from land-based gambling;
• online gambling involves different kinds of games as to land based gambling.

Moreover, it could be argued that if there is any breach of the neutrality principle in the instant case, such a breach is justifiable by reasons of general interest such as consumer protection and channeling, do not have a discriminating effect, are suitable for the realisation of the objectives pursued and are not disproportionate.

The EU principle of fiscal neutrality does generally not apply to non-EU taxes such as the Dutch betting and gaming tax. In the Netherlands, a national principle of fiscal neutrality has been developed. Although, the two principles are not exactly the same, they both prevent disruptions in economic operations.

To the extent the national principle of neutrality applies to the Dutch betting and gaming tax, it could be argued that the proposed tax differentiation between online based and land based operators should not lead to a breach of such principle since the operations are not identical or similar from the point of view of the consumer. The experiences and perceptions of online gambling substantially differ from land-based gambling. Moreover, a possible breach of the fiscal neutrality principle may be justifiable by reasons of the general public interest.