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’…
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