Opinion: ECJ Danish tax decision leaves unanswered questions
Gambling lawyer Henrik Norsk Hoffmann explains why the recent ruling on Denmark's differentiated tax regime still leaves the egaming sector open to attack
Last week the European Court of Justice (ECJ) dismissed the case brought against the EU Commission by a land-based casino in Denmark and the trade organisation for Danish slot machine operators (the Applicant).
The Applicant filed a complaint with the EU Commission in the fall of 2011 claiming that the huge difference in the gambling duty for online and land based gambling operation constituted state aid in violation of European Law.
However, the EU Commission reached a decision that such state aid was justified as the liberalisation of the Danish online market had subjected both national and foreign online operators to the control and supervision of the Danish authorities and served a well-defined objective of common interest. In addition, it was argued that the 20% gambling duty on online gross gambling revenue was not lower than necessary because the objectives of the Danish gambling legislation were achieved.
After receiving the EU Commission’s decision, the Applicant brought the decision of the EU Commission before the ECJ.
The devil’s in the details
The main issue on material law in the case, namely whether or not a differentiated gambling duty regime was consistent with the fundamental rules and principles of EU law, was never considered. The Applicant failed to show that it had sufficient legal interest in bringing the proceedings before the ECJ, and therefore the case was found inadmissible and dismissed on procedural issues.
Pursuant to the Treaty on the Functioning of the European Union (TFEU), it is a requirement to have a legal interest to bring a claim that the applicant is individually concerned by the legislation in question. The court concluded, based on the evidence, that not just one or more operators were affected by the Danish gambling legislation, but that all land-based operators were, including operators not represented by the Applicant.
To be merely affected like everyone else is not sufficient to meet the requirement. Further, it could not be excluded based on the evidence presented that the decrease in revenue was caused by the general economic crisis in Europe and not just the differentiated gambling duty. Therefore the European Court of justice reached the conclusion that the Applicant had failed to document that one or more of its members were individually concerned by the Danish gambling legislation.
As the Applicant had also failed to challenge the Danish gambling legislation’s legality before the Danish courts the European Court of Justice dismissed the Applicant’s claim as inadmissible.
The wider implications
The main issues at the heart of this case could have potentially had a huge impact on gambling legislation throughout Europe, including large markets such as Italy and Spain, but could also have brought to a hold new liberalisation on its way in the Netherlands and Germany.
Regardless of the outcome of the questions on differentiated gambling duties for online and land-based gambling, at least a decision on this issue from the European Court of Justice would have provided some clarity. With the ECJ’s decision to dismiss the Applicant’s claim in this case the question of whether a differentiated gambling duty between online and land based gambling is compatible with European Union law still remains unanswered.
Therefore new legislation on the way based on the principles of the Danish model, such as in the Netherlands, still risk a challenge from the land-based industry, which stands to be subject to a much higher gambling duty than the online industry. However, the ECJ sets the bar for sufficient documentation for legal interest in bringing a claim like the Danish before the European Court of Justice very high.
When it is insufficient for demonstrating sufficient relevant legal interest to suffer a decrease in gambling revenue, and it is necessary to conclude that a decrease in revenue is caused by any other factor of influence on the market than the difference in tax rate, it will be difficult for any land-based operators to bring a claim against gambling legislation with a differentiated gambling duty before the European Court of Justice. This leaves only the option of challenging such legislation at the national courts of the relevant jurisdiction.