Brexit Bad News for Gibraltar Gambling Industry

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Friday, February 10th, 2017 | Written by Adam Brown

Online gambling is a cornerstone of the economy of Gibraltar, a tiny British territory that borders Spain on the Iberian peninsula. For years, online gambling operators have flocked to The Rock to take advantage of its very low taxation rate of just 1 percent. Today, roughly 55 percent of all of the online gambling services offered to UK residents originate from Gibraltar-based operators, and even with the small taxation rate, the presence of these companies has been a major boon for the territory’s economy; however, that could all soon change.

Legal Dispute

Gibraltar seems poised to lose what could prove to be a costly legal dispute with the United Kingdom. The passage of the 2014 UK Gambling and Licensing Act introduced brand new rules for all operators offering UK-facing gambling services. Under the new law, all operators providing services in the UK became responsible for paying a 15 percent tax on gross gaming revenue to Her Majesty’s Revenue And Customs (HMRC).

Fearful that the 14 percent increase in taxation would cause operators to flee the territory, the Gibraltar Betting and Gaming Association subsequently filed a suit against HMRC with the High Court in London. Its argument centered on the fact that Gibraltar was a territory of the UK, and as such should be free to set its own rates of taxation rather than being subject to the terms put in place by the 2014 UK Gambling and Licensing Act. The High Court referred the matter to the Court of Justice for the European Union (CJEU) in Luxembourg.

AG Sees Gibraltar/UK as Single Entity

While the CJEU has yet to hand down its verdict on the matter, the Advocate General for the European Union, Maciej Szpunar, has issued an opinion that seems to undermine the argument put forth by Gibraltar. In a statement, the Advocate General declared that Gibraltar and the UK should be considered a single entity in terms of trade, and as a result, operators in Gibraltar would be subject to the same taxation as other operators under the law. As Maciej Szpunar explained in a preliminary decision on the issue:

“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.”

Gibraltar Disappointed

This news is disappointing for the Gibraltar Betting and Gaming Association (GBGA) and for the operators in Gibraltar; however, it’s important to note that the Advocate General does not have the final say in the matter. The court usually takes such advice into consideration when issuing its rulings, but it is free to act on its own and make a ruling in favor of Gibraltar. Still, most legal experts believe the fight against the Point of Consumption Tax is likely already lost for the territory. Commenting on the issue, GBGA CEO Peter Howitt stated:

“We are naturally disappointed with the opinion of the Advocate General. We continue to believe that the gambling duty applied by the United Kingdom government to operators out of the jurisdiction, in circumstances where the customer may not be in the United Kingdom when they gamble or even a United Kingdom resident, is a disproportionate restriction on operators.”

Howitt also said that he was looking forward to receiving the CJEU’s ruling on the issue.

Concerns Mount for Gibraltar

In addition to worries about financial pressures on operators due to the Point of Consumption Tax, the Gibraltar Betting and Gaming Association (GBGA) also has Brexit to fear. It’s unclear whether the United Kingdom’s exit from the European Union will mean closing Gibraltar’s border with Spain, or restricting free trade with the European Union. If so, the gambling industry may find its employees unable to make their daily commute and therefore find themselves shut off from doing business with the rest of Europe.

Gibraltar Background

The British Overseas Territory of Gibraltar covers 1,664 acres of land and has been subjected to United Kingdom rule since 1713. The Gibraltar Constitution Order of 2006 however, granted the enclave internal democratic self-government control, in a departure from its previous colonial type relationship, while the UK would still exercise responsibility for Gibraltar’s defense, foreign affairs, and internal security.