UK Point of Consumption Tax referral: the Heart of Justice?

By Paul Leyland, Founding Partner, Regulus Partners

“Knowledge without Justice ought to be called cunning rather than wisdom.” Plato

The British High Court has ruled that UK Point of Consumption Tax law was sufficiently controversial with regard to EU law that it needed to be referred to the Court of Justice of the European Union (CJEU) for an ultimate decision as to its legality.

According to Olswang, the law firm representing the Gibraltar Betting and Gaming Association (GBGA), there were three key points that the Judge had issue with:

1.       Whether a restriction on the provision of services from Gibraltar to the United Kingdom engages the right to free movement protected by Article 56 TFEU. Mr Justice Charles held that this was an issue of constitutional importance.

2.       Whether the taxes payable under the new tax regime constitute restrictions on the right to the free movement of services for the purposes of Article 56 TFEU. HMRC had argued that in order for a tax measure to be a restriction for the purposes of Article 56 TFEU it is necessary for it to be discriminatory. Mr Justice Charles held that in this regard HMRC had relied on a principle of law which has no clear precedent in European law.

3.       Whether the aims relied on by the UK Government to justify the new tax regime are legitimate. The reasons given by the UK Government for the new tax regime included addressing a perceived competitive advantage for overseas operators and increasing UK tax revenue.

Each of these was cogently argued on behalf of the plaintiff and each clearly makes logical sense.

The CJEU must now find the time to consider then decide whether this part of the 2014 Finance Act is indeed lawful, needs minor tweaks or sends UK government back to the drawing board. In the latter case the proceeds of the current tax will need to be refunded.

This process is likely to take several months for the CJEU to find the time and several more months to consider evidence and deliberate. In the meantime operators must continue to pay the tax.

So far so good for the off-shore remote gambling industry?

I’m not so sure.

Mr Justice Charles, has in my (thoroughly lay) opinion (safely) stuck to points of law and ‘kicked the problem upstairs’ from a constitutional / policy perspective. This is not the same as a judgement that the tax is unlawful and the decision should not be taken as that. Moreover, the track record of the CJEU in gambling and in other fields is that it is quite happy to consider law within the context of wider policy (especially where free trade ‘needs’ to be qualified, with gambling a fairly uncontroversial case in point): indeed as the highest court in the EU it has to.

Looking through the lens of wider policy, is it likely that a vital organ of the EU state is going to find in favour of tax havens and offshore commercial businesses over the tax raising powers of its larger Member States? I think not (certainly not without plenty of get-out clauses in the judgement for which the court is famous). Equally, even if the CJEU does rule in favour of GBGA, is it likely that EU and Member State governments will meekly acquiesce to such a decision and accept the new world order? Of course not… Instead they will be forced back to the drawing board to achieve their ends through different means (possibly with added anti-sector sentiment and belligerence). From a UK-specific perspective, the EU treaty negotiations provide a further mechanism for the EU to ‘help’ UK with a relatively marginal concession in the scheme of things.

So here is the conundrum…

In my view, the best thing the offshore gambling industry can now hope for is that the CJEU finds for HMRC. Otherwise, Member States, including the UK, will have to think up new gambling laws from first principles in order to ensure an ‘adequate’ level of tax and regulatory oversight (according to their own criteria). Opening up that can of worms is not likely to end with the benign, gently regulated and low-tax regime that the UK currently enjoys.

This is a fight the more aggressive elements of the offshore industry may regret ‘winning’…      

Scratching the three year itch...

© Janvdb95 | Dreamstime.com - Forever Marilyn In Chicago Photo

By Dan Waugh, Partner, Regulus Partners

“Everything should be made as simple as possible, but not simpler.” Albert Einstein

It is a feature of gambling regulation that, while the issues are often complex, public discourse on the subject struggles to rise above the simplistic. Debates tend to be polarised and ‘good stories’ told by both the pro-gambling and anti-gambling lobbies rarely admit inconvenient facts – especially where the matter of gambling-related harm is concerned. Despite the best endeavours of the regulator, evidence tends to be chosen selectively and often manipulated to accord with predetermined theories.

That last year’s Responsible Gambling Trust research into B2 machines gave succour to both the Association of British Bookmakers and the Campaign for Fairer Gambling provides the perfect illustration. The verdict that addressing stake size in isolation was unlikely to fully resolve issues of problem gambling should not have been a surprise to anyone connected with the industry. Previous studies and basic common sense had told us this some time ago. We perhaps should not have been surprised either that both sides would seek vindication in this finding.

In the Gambling Commission’s 2009 ‘Qualitative Survey of Machine Gamblers’, Professor Mark Griffiths set out three dimensions influencing customer behaviour on machines – situational (characteristics of the environment), personal (characteristics of the player) and structural (characteristics of the machine). His study suggested that all three were important in understanding play and problematic play.

So if we can accept that the issue of machines and behaviour is complex and multi-faceted, perhaps now is time to recognise that within our only formal and (at least in theory) regularised review of regulations – the Triennial Review (which is scheduled to return next year).

An expanded review of what types of slot machine are made available in Britain and how (rather than one that limits itself to questions on stakes and prizes), underpinned by a rolling programme of research has much to recommend it. It would contextualise policy discussions on machine regulation by considering factors such as sociability, environment, marketing, access and supervision alongside structural characteristics; it would help the Gambling Commission to deal with new issues (such as current hot topics of skill-based hybrid slots and the proliferation of digital content in-venue) as they emerge; it would put other issues (such as the casino industry’s long-running and so far frustrated efforts to gain an increase in machines) into a formal decision-making process; and it would create a more stable environment for industry investment and innovation.

Anchoring the process with a sustained programme of independent, collaborative and sequential research seems infinitely preferable to the knee-jerk rounds of partisan ‘evidence-gathering’ that has been the hallmark of previous reviews (the fact that the 2013 review resulted in more than 9,000 identical submissions from the betting sector is telling). The Government and Commission are heading in the right direction by insisting that all future submissions should be grounded in evidence – but doubt will persist as to the integrity of studies undertaken by interested parties. An ongoing programme of independent research seems desirable.

It may all sound like hard (and possibly expensive) work but who’s to say it wouldn’t be more efficient and less painful than the current pattern of lobbying and counter-lobbying that characterises the slots debate today? If a portion of the time, effort and lobbyist fees that are currently expended on debating these questions (creating much noise but little in the way of signal) was diverted towards a review such as this, everyone might benefit. The government and regulator would have a better mechanism for dealing with gambling headaches, industry would be able to focus on moving forward rather than defending the status quo and concern groups could shift from a mode of agitation to one of constructive engagement.

Whether it’s too late already to achieve an expansion of the 2016 review remains to be seen; but if we are to gravitate away from our unhelpful obsession with stakes and prizes, we need to start planning today.