When the UK introduced the Point of Consumption (PoC) tax back in 2014, online gambling operators were not happy. All of a sudden operators facing the UK had to pay a 15% tax no matter where they were actually based themselves. Instead of focussing on the point of supply, the HMRC decided to focus on where the gambling took actually place, namely in the UK.
The Gibraltar Betting and Gaming Association (GBGA) decided to contest the new tax. They argued that it violated EU law, which ensures the free movement of goods and services within the EU (Article 56). The tax could be viewed as a restriction to that. Considering that no less than 55% of gambling operators facing the UK are actually based in Gibraltar, the GBGA has a vested interest in having the PoC tax overturned. Up until the introduction of the new tax law, Gibraltar-based operators only paid 1% tax.
The GBGA first appealed to the UK High Court of Justice in 2014, even before the tax actually came into effect. But their claim was rejected and declared not to be in violation of Article 56. The GBGA didn’t think to give up just yet and continued on in 2015. This time, however, the High Court in London pushed the matters to the Court Of Justice For The European Union, which is based in Luxembourg.
A decision is still pending and the EU Court of Justice is likely not going to make a final announcement for some months, but the Advocate General issued a preliminary statement last week and that does not bode well for Gibraltar. Maciej Szpunar is of the opinion that Gibraltar and the UK should be treated as one entity in this matter. He said “The application of European Union law to Gibraltar does not create new or supplementary rights between the United Kingdom and Gibraltar that are in addition to those flowing from United Kingdom and Gibraltar constitutional law.”
This effectively declares the dispute between the HMRC and Gibraltar to an internal affair and Article 56 would not apply. That goes contrary to what Gibraltar wants. They wish to be considered as a separate territory, which would give the tiny freedom to provide services as well as be treated evenly, which would extend to its relationship with the UK.
The GBGA expressed disappointment, of course, but they will still wait for the official court ruling, especially since the EU Court of Justice is not obliged to follow the advice of the Advocate General (although on the whole it does).
Needless to say that this is also not good news for the British Overseas Territory when it comes to the Brexit. Gibraltar overwhelming voted against leaving, but now British politicians advocate for a hard Brexit, which includes exiting the Single Market. That, in turn, could stir things up quite significantly for online gambling operators. For now nobody seems to worry about the consequences too much, however.