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Gibraltar loses tax ruling at EU

  • Jun 12, 2017 | Richard Asquith

Gibraltar loses tax ruling at EU

The European Court of Justice (ECJ) has today ruled against Gibraltar’s appeal to have it exempted from the UK’s 15% gambling tax.  This set-back for the island’s burgeoning offshore gambling sector will add to Brexit worries and long term loss of EU access for other key areas for the territory, such as financial services.

Gibraltar gambling industry challenges UK 15% gambling tax

The UK’s Point of Consumption Tax (POC), introduced in 2014, levied 15% consumption tax on UK residents using online gambling services provided from outside the UK.  This imposed an obligation on offshore gambling operators to levy and remit the tax to the UK’s HMRC, and drew Gibraltar-based gambling operators into UK taxation net for the first time. The POC legislation also required non-UK based operators to be regulated in the UK if active in the UK market.  There is no VAT on gambling.

The Gibraltar Betting and Gaming Association (GBGA) challenged the basis of the tax, claiming it violated Article 56 of the Treaty on the Functioning of the European Union (TFEU), allowing the freedom to trade freely across EU borders.  After losing in the UK’s High Court, the GBGA sought a referral to the ECJ.

ECJ backs UK taxman

The ECJ held that “the provision of services by operators established in Gibraltar to persons established in the UK constitutes a situation confined in all respects within a single (EU) Member State”.  For the purposes of Article 56 TFEU, Gibraltar is treated as part of the UK and therefore POC is not a restriction on the freedom to provide services.  The UK was therefore free to levy domestic tax, not affecting other EU states, covering Gibraltar.  The ECJ also held that its decision did not undermine the functioning of the EU internal market.

The ruling will be a blow for Gibraltar’s burgeoning gambling market, and will add further uncertainties to the rock’s economic model with Brexit looming.  At stake for Gibraltar on Brexit is its potential exit from the EU Single Market.  This has enabled the low Corporate Tax outpost to attract the gambling, banking and insurance industries on the basis that they can then freely sell across the EU

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.