Expected tax measures from 2018 – consequences on gambling activity
Series of articles by Anchidim Zăgrean, Vice-President of Rombet
The end of the year finds all actors in the Romanian economy involved in debates, public or private, trying to figure out the organizational consequences, the social nature, the effects on profitability and the necessary logistics as a result of the entry into force, in January 2018, of the much commented legislative changes on taxation.
These changes cannot bypass the organizers of gambling, and in the following we will try to synthesize some of these consequences expected on the business environment.
With the expected tax changes, based on income levels, for those with annual incomes below one million euros, with a 1% share, the tax measure would have positive effects on the field, notably on joint activity, with other economic operators in the form of a joint venture, because it would no longer be the case that gambling revenues would be excluded from this form of taxation.
The only delicate issue is the fact that it would again be questioned the need for the state institutions, especially the ANAF, to understand the way of calculating and registering in their records the income from this activity, in compliance with the national and European regulations. Although clear and beyond interpretation, beyond the doubt, the previous period has shown that ANAF inspectors can interpret these regulations in their own way, so as to create the image of a field exposed to tax evasion.
The statement that current regulations are clear and impossible to interpret, as was the case in the previous period, is supported by the following relevant documents:
1. The Treaty on the Functioning of the EU, Article 288, clearly establishes that, for the exercise of the Union’s competences, the institutions adopt regulations, directives, decisions, recommendations and opinions and, in relation to these Regulations, they are of general application, are binding in all its elements and apply directly in each member state; EU regulations, mandatory to apply, as above, on the basis of which gambling organizers must establish and record income from this activity, is:
(a) Rule 549 of 2013, which, in paragraph 4.135, expressly refers to gambling, explaining to anyone, by definition, what the amount of money received from gambling players include
“Definition: the amounts paid for lottery or betting tickets consist of two elements: payment for a service to the lottery or gambling unit and a residual current transfer to the winners”
b) EU Regulation 1126/2008, consolidated today, which adopted certain international accounting standards, and for determining the income from the provision of services, applicable to gambling, it is mandatory to put into practice those stipulated in the International Standard on accounting 18 -Income- namely that “Revenues include only the gross incomes of economic benefits received or receivable by the entity on its own behalf”
2. The Treaty on the Functioning of the EU, Article 280, provides that judgments of the Court of Justice of the European Union shall be enforceable and, in the case of gambling revenue, in the jurisprudence of that European institution it is developed the way it can be judged as an economic reality, the entire procedure for participation in the game of gambling and then determining the income from special service provision by the gambling organizer:
(a) The first decision was given on May 5th 1994 under Article 267 TFUE, also known as the ‘Glawe case’, which states that a taxable amount (a taxable income) must not include amounts collected by the organizer and then distributed as prizes to players;
b) Next, there are a number of other CJUE judgments on the same subject that go from the “Glawe case”, and in the Opinion of Advocate General Yves Bot” we explicitly find the interpretation of accounting regulations when determining the income of a service provided as a sum of money received “in his own name” and the advocate general states that, in the case of gambling, it is “constituted only by the percentage of the amounts in play the operator can actually dispose of for himself, which means that this percentage does not include the percentage of the total amount in play corresponding to the winnings paid to the players”.
3. Finally, the EU VAT Directive states in Article 135 that ‘Member States shall exempt the following transactions: betting, lotteries and other forms of gambling subject to the conditions and restrictions laid down by each Member State’ and Advocate General Yves Bot argues that this exemption is not intended to create any gambling advantage but that “the exemption to which these games may benefit is motivated by purely practical considerations, linked to the fact that gambling operations are not well suited when applying VAT. Thus, VAT is a consumption tax whose basis of taxation is the amount received in return for the supply of a good or the provision of a service.
This system is not easy to apply to gambling, where consumers pay stakes in exchange for a chance of gaining a higher value eventually.“
The conclusion is as clear as possible: the revenue from gambling activity, which is recorded in its own bookkeeping and turnover, from this activity, is represented by the part of the collected amount, in the form of a participation fee in the game, which remains at the disposal of the organizer “in his own name” or as “economic benefits” and “he can actually dispose of”, but after the collected prizes were awarded to the players.
We come back with other opinions in the next edition of the magazine…