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Don't Bet On It - By Kitty Miv, Editor

Kitty Miv, Editor
06 October, 2011

If I say Greece, Oh No! you will say, another episode of international alphabet soup, with the ECB v the IMF v the EFSF. Don't worry, this is going to be about on-line poker, much more fun. Greece is the latest in a line of European countries to put in place a licensing structure for on-line gaming. Other countries that have either done the same already or are actively planning it include Ireland, Denmark, France, the UK and Germany.

These regimes typically require firms offering on-line (remote) gambling or gaming to the local citizenry to be licensed by the government in question. The given reasons for having a licensing regime are usually moralistic: it's to protect children and vulnerable adults from unscrupulous operators, and to ensure that players aren't cheated. Oh, and by the way, there are licensing fees, and usually a 20% tax on gross profits. This last, throwaway line is of course the real reason for the licensing band-waggon. On-line gaming in Europe, so far as anyone can measure it, is at least a EUR10bn business, and treasuries want their share of the cake.

There are two sets of problems, however: one is the existence inside the EU of legitimate, low-tax centres for on-line gaming, notably Malta and Gibraltar; and the other is the inability of European governments to censor the Internet, so that an average Joe or Jane can play on gaming sites hosted in Costa Rica or Vanuatu which are untaxed, and can offer better odds to the punters. Such sites may be locally regulated, so why should Joe and Jane not be able to play on them if they so choose?

During the summer, the Commission undertook a consultation on a green paper on remote gambling, in order to 'ensure legal certainty and effective protection of EU citizens' (see; not a word about tax!). It is now cogitating on the results and will make its proposals for a harmonized EU regime some time this winter.

But it has a hard task in front of it, and will surely be unable to square the circle.

First, the gambling regimes being installed by member states are clearly illegal, in that they invariably attempt to force operators to be licensed in a country where their services are used rather than where they are established. It is of the essence of EU law that a seller (of banking, insurance, baked beans or basket-work) should be able to offer her wares across the Union based on her home license: the EU has gone to immense trouble to force this to happen (against stiff national resistance in most cases) through 'passporting' rules. Is it now going to turn around and offer a contradictory regime for gambling? How can it avoid the principle that a gambling operator properly licensed in a member state can offer its services throughout the Union? And if that is the case, then they will all flock to Malta and Gibraltar (they are already doing so) where taxes are far lower than in the UK, France et al.

The ECJ, which is normally at the forefront of enforcement of the EU's freedoms, has been hesitant over gambling and has taken (or been offered) few references. It gave a judgment over a Swedish advertising case which seemed clear enough, but in other cases where it could have taken a clear and principled stand it has tended to be mealy-mouthed.

In any event, in the absence of a direct attack on the freedoms of the Internet, the efforts of countries to ring-fence their internal gambling markets are piffling, and will simply be ignored by punters. It is a worry perhaps that the EU may try to demonize external providers and use them as an excuse for permitting 'filtering' and other constraints on Internet access. The French are already enforcing their 'three strikes' law in respect of intellectual property; but that is a clear case of criminality, plus no-one knows whether the courts will permit disconnection once it actually reaches that stage and some human rights activist contests it. And what is the point of 'disconnecting' a particular user, anyway? You just walk next door and start up again.

In the end, this is a clear case of over-government. Member states and the Commission should simply step back and let the market take its natural course, which will be away from them! But you can bet your life they won't.

Ciao, Kitty


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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