23 August 2014 ELSEVIER 

Translation by Gaming in Holland  elsevier Gaming Tax Troubles

GAMBLING / The Dutch government wants to liberalize the gaming market: online gambling will become legal and Holland Casino will be privatized. But lawsuits are imminent: the gaming tax on gambling sites is much lower than for casinos and arcades.

Text: Wilbert Geijtenbeek

The Dutch people that enjoy gambling and want to adhere to the law are currently limited in their choice. Poker is prohibited, as is online gaming: roulette games are only allowed at the state-owned Holland Casino. Whoever wants to participate in a lottery must choose from the following three companies: the State Lottery, Lotto and the charity lotteries of the company Novamedia. Further more, they must rely on machines in gambling houses and pubs.

This is about to change. Large foreign gaming providers are looking eagerly at the Dutch gaming market. If it is up to the Dutch government, the regulations will change drastically next year. The state wants to open up the market to foreign parties, allow poker and privatize Holland Casino. Ultimately, the market for lotteries must also be opened up. The bill drafted by the government has yet to be dealt with by the Parliament. One of the biggest changes seems to be the legalization of gambling on the Internet. Online gamble is still illegal.

According to the letter of the Gaming Act, which dates back to 1964 and has changed very little since, the Internet does not even exist. The reality is different: more and more Dutch people are putting their money on gaming sites such as comeon.com, bwin.com, unibet.com and betsson.com. Legally speaking, they are playing abroad. Nevertheless, the Tax Authorities demand that the lucky winners pay gaming taxes – which almost nobody does. By allowing gaming online, including on Dutch websites, the State Secretary of the People’s Party for Freedom and Democracy, Mr Fred Teeven, hopes to gain 750,000 new payers of gaming taxes.

The financial interests of opening up the online gaming market are big. According to the British consulting firm, H2 Gambling Capital, the Dutch gaming market now has reached a volume of 2.2 billion euros, of which 11% are online opportunities. Most offline gamblers let their money roll in casinos, arcades and on slot machines. A good second destination is the lottery, on which the Dutch spend a relatively fair amount of money compared to other Europeans. A small minority group gamble with their money through lotto, pools or bingo games.

Casinos and poker sites are the most popular online. But the favorite pastime of gamblers is something called digital online sports betting, which means betting on trials of strength in top sports. This goes beyond the traditional football pools, where most participants place a bet on earnings, a team’s draw or loss, or the final score of a match. Online gamblers can bet their money on the exact time of the first goal, the amount of violations a team will make, or the amount of red cards they will receive. In favorable cases, these types of sports games result into 1½ to 5 times the deposit amount, but sometimes someone will win the proverbial jackpot.

That happened to a Norwegian who bet 32 Norwegian krone (3.88 euros) in June on the chance that the Argentine footballer Luis Suárez would bite one of his opponents during the World Cup in Brazil. With this bet, he earned 175 times his deposit.

Illegal providers

Many online gaming companies are located in Malta. The popularity of this island nation, member of the European Union since 2004, is due to the favorable tax rate for gaming companies. Casinos contribute only a few thousand dollars per month to taxes, and other types of gaming companies apply rates ranging from 0.5% of the deposit to 5% of the profits. The gaming industry provides 10% of its gross domestic product to Malta.

Not only the Dutch Tax Authorities are losing income this way. The foreign gaming websites simultaneously steal some of the market share from legitimate companies such as Holland Casino. This state-owned company, which is not allowed to operate an online gambling house, complains in their latest report about “illegal providers that are able to provide the Dutch market without limitation for years.” The popularity of online gaming has made it difficult for the company: their turnover has decreased by 15% over the last five years. Furthermore, four out of these five years, Holland Casino has suffered losses.

In last decade, it has been raining lawsuits of established gaming companies against their online competition. Specialized lawyers in this field made a decent living for years thanks to this legal warfare. An example of such gaming lawyer is Justin Franssen (40) of Kalff Katz & Franssen in Amsterdam. For thirteen years, he has been a gaming law lawyer, and more and more for online businesses in recent years – such as Unibet, Betfair and PokerStars. Until recently, he assisted his clients in the courtroom when they were summoned for their illegal online activities. In the run up to the new law, the number of trials has significantly reduced.

Pending the commencement of the new law, State Secretary Teeven announced to tolerate the Internet activities from abroad, provided they do not openly target the Dutch market. This has lead to the fact that, since last year, hardly any Dutch gaming sites can found. Even traditional Dutch companies such as oranjecasino.com provide their Dutch visitors nowadays in the English language. In spite of the “legal interwar period”, as Franssen calls it, his office still does reasonably well. The latter has everything to do with the content of the bill, over which the Parliament will soon have the last word. The hot potato of the bill is the new gaming tax regime. In his bill, Teeven advocates for two rates: a tax rate of 20% should be applied for online businesses, while keeping the current rate of 29% for offline gaming.

The main reason for this distinction is the public treasury: the State Secretary mentions in the notes of the bill that equalizing the rates would mean a loss of 145 million euros in tax revenue. The Council of the State has criticized this difference in taxation, but Teeven has put this criticism aside.

The latter has resulted in bad blood with the arcade providers. Lawyer Bas Jongmans, of the legal office Legal Gaming, has announced on behalf of casino and gaming hall owners to prepare lawsuits against the state, which should force Teeven to adjust the law.

Tax Expert Frans Duynstee (53) agrees: “The distinction is artificial. If you take a slot game, and you connect it to a wire so the game will run over the Internet, would this be considered online gaming? Different types of hybrid games will emerge. That is fodder for lawyers.” According to Duynstee, the lawsuits will start when the Tax Authorities send the first tax assessments.

Walhalla for lobbyists

But before lawyers are draping their gowns, lobbyists will roll up their sleeves. There are many of those lobbyists, including a number of former politicians. For example, Robin Linschoten, former State Secretary of the People’s Party for Freedom and Democracy, represents an interest foundation for online gaming companies. Bert Bakker, former parliamentarian of the Democrats 66 represents the interests of online businesses, such as Tippa24 and PokerStars. As a consultant of the lobby office Meines Holla holds Bakker & Partners in The Hague, he is engaged in “the modernization of gaming policy and an equal playing field for license holders”, according to his website.

Frits Huffnagel (46), former councillor of the People’s Party for Freedom and Democracy in Amsterdam and The Hague, is the president of the slot machine industry association VAN since last May. Huffnagel is “extremely unhappy” about the bill, which he sees as a sledgehammer blow to the industry. Huffnagel: “If this law is not changed, most companies will not survive.” He wants to use all means to achieve an equal tax rate for both the gambling palaces as online competitors, but emphasizes that he will not prepare any lawsuits. ‘The first move is for the Parliament.”

GIH_LOGO

On the other side of the front are the lobbyists from online companies, such as Unibet, that believe a tax rate of 20% is too high. Unibet claims to be the most popular online gaming provider in the Netherlands. At the end of June, they sent their Swedish Chief Executive Officer Henrik Tjärnström (44) to the Netherlands to advocate a gaming tax rate of up to 10% during the industry congress in Amsterdam, Gaming in Holland.

Henrik Tjarnstrom CEO Unibet-4 Henrik Tjarnstrom CEO Unibet-4 Tjärnström expects that the lower rate will lead to a considerably higher illegal gambling rate among the Dutch within the scope of the regulated market – and that they will be lead subsequently to the Tax Authorities. The lower rate is obviously favorable to Unibet, which will no longer be allowed to provide to the Dutch market from Malta under the new regime. Part of the law is the tough approach on violators of the rule, who can be easily traced within the European Union. But if gamblers switch to gaming sites in distant countries where no tax is levied, Teeven will miss out.

Tjärnström: “There are currently a million Dutch online gamblers, who are still playing through European suppliers. But they might soon change to Asian providers.” With a tax burden that is too high, the government would be playing roulette with the safety of their citizens, as they will be automatically driven into the digital clutches of oriental gaming providers, which are known to launder money through online casinos. To prevent this, the Dutch offer should be “competitive with the Asian demand”, or so goes the reasoning.

According to consultant Willem van Oort (49), the market can only grow when all legal uncertainty has passed. He estimates that the Dutch market for online gaming, now worth approximately 250 million euros, will double in the long term. Van Oort spent four years working for a gaming provider in Spain when it legally opened up the online gaming market. He still lives in Spain, but consults Dutch and foreign companies on their strategy to enter the Dutch online market in the future. Van Oort also reckons that the growth of the market will be driven by marketing expenditures. “The current illegally operating providers will be using advertising for their sites after the opening up of the market”. Van Oort estimates the future marketing expenditures at 50 -100 million per year. Van Oort: “Online gaming will soon reach to 500 million. This will attract gaming companies, investors and lobbyists. To obtain a position in this market would perhaps be worth the gamble”.

Millions of euros for the favor of the Dutch gambler

In the run up to the opening up of the Dutch online gaming market, several e-gambling giants are already showing interest.

For example, in March, the German lottery website Tipp24 announced to be prepared to donate 40% of its revenue to charities, sports and cultural institutions, in return for joining the Dutch market.

In other games of chance, large international suppliers are already buying into the Dutch market. In recent months, several parties made acquisitions of websites to be able to reach the Dutch gambler. Earlier this month, the Austrian company Novomatic bought the online bingo operator Bingocams from its Dutch owners. This site is a popular bingo games operator with a webcam function. According to the website meneercasino.com, the company would be good for a gross profit of 1.5 million euros. The purchase amount was not disclosed, but the acquisition of a market share in the Dutch online gaming market is worth a hefty deposit, or so it seemed earlier this year.

In February, the Swedish listed gaming company Betsson bought the two online casinos Oranje Casino and KroonCasino. For these sites with a turnover of 32 million, the Swedes shelled out 130 million euros. 

Elsevier Magazine 23.8.2014

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