January 30, 2017

The Gibraltar Betting and Gaming Association (GBGA) is a trade association whose members are primarily Gibraltar-based gambling providers who provide remote gaming services to customers in the UK and elsewhere.

In 2014, pursuant to the Finance Act 2014, the UK adopted a new tax regime that required gambling services providers to pay a gaming duty in respect of all remote games of chance placed with them by UK consumers, regardless of the tax paid in their own jurisdiction. This new tax regime replaced a regime under which only service providers established in the UK were charged gambling duties on their gross gambling profits from their supply of gaming services to customers worldwide.

The GBGA has challenged the validity of the new tax regime in the High Court of England and Wales on the basis that the tax is contrary to the freedom to provide services enshrined under Article 56 of the Treaty on the Functioning of the European Union.

Her Majesty’s Revenue and Customs (the defendant) argues that the GBGA has no enforceable EU rights as the provision of services between Gibraltar and the UK is not caught by EU law. In any event, as an indistinctly applicable tax measure, the new regime cannot be said to be a restriction of the freedom to provide services, it says.

The High Court has asked the Court of Justice of the European Union whether, for the purposes of the freedom to provide services, Gibraltar and the UK are to be treated as if they were part of a single Member State or whether Gibraltar has the constitutional status of a separate territory to the UK so that the provision of services between the two is to be treated as intra-EU trade.

Advocate General Maciej Szpunar has opined that, for the purposes of the freedom to provide services, Gibraltar and the UK are to be treated as one Member State.

While it is clear from the Treaties that EU law applies to Gibraltar, they are silent on the relationship between the UK and Gibraltar when it comes to the application of the fundamental freedoms, the AG says.

According to CJEU case law, it is the UK and not Gibraltar that has assumed obligations towards Member States in ratifying the Treaties. Logically, therefore, infringement proceedings with respect to Gibraltar are brought against the UK and Gibraltar cannot institute infringement proceedings itself. In the AG’s view, if the freedom to provide services were to apply between the UK and Gibraltar, this would imply, rather strangely, that the UK assumes an obligation vis-a-vis itself. The application of EU law to Gibraltar does not create new or supplementary rights between the UK and Gibraltar in addition to those flowing from UK and Gibraltar constitutional law.

Consequently, Gibraltar and the UK cannot be other than a single Member State for the purposes of the freedom to provide services.

Further, in the event that the CJEU concludes that the freedom to provide services principle does apply to trade between Gibraltar and the UK, the AG considers that the UK’s new tax regime does not constitute a restriction to that freedom. The new tax regime imposes domestic gambling duties that apply indistinctly to service providers.

Finally, the AG considered whether a restriction to the freedom to provide services would be justified should the CJEU disagree that this is a purely internal situation and there is no restriction on the freedom to provide services in this case. In the AG’s view, it is for the referring court to determine whether the grounds of justification invoked by the UK, namely to level the playing field between UK and overseas operators and to ensure that the UK can exercise proper fiscal supervision over the gaming market, are suitable and necessary to attaining what they set out to achieve. (Case C‑591/15 The Queen, on the application of The Gibraltar Betting and Gaming Association Limited v Commissioners for Her Majesty’s Revenue and Customs (Advocate General Opinion) 19 January 2017 — to access the Opinion in full, go to the curia search form, type in the case number and follow the link).