UK Point of Consumption Tax Legality to be Reviewed by EU

The United Kingdom’s Point of Consumption Tax on online gaming sites who attract UK players has been highly controversial even before it came into force late last year.

The tax, which is set at 15 per cent of the gross profits of online gaming companies that have UK customers, has led to some networks ceasing all operations in the UK. It has also led to the Gibraltar Betting and Gaming Association (the "GBGA") issuing judicial review proceedings in October 2014 to the UK’s High Court to question the legality of the tax.

Those proceedings were first taken to the Court in October last year, and now the High Court has ruled that the Point of Consumption Tax violates European Union (EU) laws. The key law that Lord Justice Charles said was violated by the tax was the EU law permitting the right to free movement of services between EU member states.

By implementing a tax on offshore companies, including those based in other EU nations, it was deemed that they are at a disadvantage when aiming to supply their services to customers based in the UK.

As a result, the matter has now officially been referred to the Court of Justice of the European Union, who will make an official and binding judgement on whether the tax is indeed a violation of EU law.

So what does that do for the Point of Consumption tax?

Well, it all depends on what the judgement is, but there are some options which the UK Government could and may take to reform the tax.

Firstly, it could reduce the tax rate to one that may not be seen as ‘restricting’ offshore companies right to free movement. The 15 per cent tax rate has always been viewed by online poker and gaming companies as unnecessarily high and a deterrent for conducting business in the nation.

A reduction of this rate to under ten per cent may help appease some of those companies, particularly the major ones, and could take some heat off the UK Government.

Another option is to do away with the tax to all online gaming companies based in the EU. That would likely be enough to determine that the UK Point of Consumption tax does not break EU laws as its laws are aimed at member states and their citizens.

However, this is an option the UK Government would be unlikely to take given that the majority of major online gaming companies are based in EU jurisdictions such as Gibraltar, Ireland and Malta.