QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Strand, London, WC2A 2LL |
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B e f o r e :
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THE QUEEN (on the application of) THE GIBRALTAR BETTING AND GAMING ASSOCIATION LIMITED |
Claimant |
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-and |
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THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS HER MAJESTY'S TREASURY |
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HER MAJESTY'S GOVERNMENT OF GIBRALTAR |
Defendants Interested Party |
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Kieron Beal QC, Sarah Wilkinson and Oliver Jones (instructed by HMRC legal) for the Defendants
Lord Pannick QC and Ravi Mehta (instructed by Mishcon de Reya) for the Interested Party
Hearing dates: 23 to 25 March and 1 May 2015
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Crown Copyright ©
Introduction to the issues
Within the framework of the provisions set out below, restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other than that of the person to whom the services are intended.
The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may extend the provisions of the Chapter to nationals of a third country who provides services and who are established within the Union.
i) the court should not entertain the claim because (a) there is an alternative remedy, and (b) the Claimant cannot seek to override the UK legislation because it has no directly effective EU law rights,ii) the Claimant's members have no enforceable EU law right and so the substantive points of law relating to the application of Article 56 to the New Tax Regime do not arise for consideration in these proceedings, and
iii) if I was to find or assume that for the purposes of Article 56 Gibraltar is to be treated as a Member State and for that, or other reasons, the Claimant or its members have directly enforceable EU rights, those rights are not engaged.
a national court or tribunal may, in particular when it considers that sufficient guidance is given by the case-law of the Court of Justice, itself decide on the correct interpretation of European Union law and its application to the factual situation before it. However, a reference for a preliminary ruling may prove particularly useful when there is a new question of interpretation of general interest for the uniform application of European Union law, or where the existing case-law does not appear to be applicable to a new set of facts.
(4) A reference may be made at any stage of the proceedings: CPR 68.2(1) . Although it is often desirable for the court first to find the facts if they are not agreed, this is not necessarily the case: a reference may be made on assumed facts…
(5) In exercising its discretion as to when to make a reference, the national court can take into account considerations of procedural organisation and efficiency, including whether significant trial cost would be avoided…
(6) A reference should include all questions on which a ruling of the ECJ is required. It causes substantial additional delay and expense if the national court should have to make a further reference in the same case.
(7) Accordingly, if a reference is to be made at a preliminary stage, the court must have confidence that the factual situation can be sufficiently defined and that all the relevant legal issues have crystallised such that the questions on which a ruling of the ECJ is necessary can be framed with precision
The Constitutional Issues
i) Gibraltar and the UK are parts of a single Member State for the purposes of EU law and so Article 56 does not apply, save to the extent that it can apply to an internal measure, (the Revenue's primary position and the fall back position of Gibraltar and the Claimant),ii) Gibraltar is to be treated as a Member State for the purposes of Article 56 or as a separate territory with the effect that trade between Gibraltar and the UK is to be treated as intra-EU trade between Member States (the primary position of Gibraltar and the Claimant), and
iii) Gibraltar is a third country or territory with the effect that EU law is only engaged in respect of trade between the two in circumstances where EU law has effect between a Member State and a non-Member State (the obiter conclusion reached by Green J and the fall-back position of the Revenue).
i) to find in favour of any of the primary arguments put to me and therefore reject the obiter conclusion of Green J, orii) to depart from his view on the appropriateness of a reference.
The Article 56 Issues
i) the taxes are internal (domestic) taxes, andii) the taxes do not have a discriminatory impact.
The Revenue accepts that for its primary argument to succeed it must be right on both points.
i) the taxes imposed by the New Tax Regime on its members are not internal (domestic) taxes and are POS taxes on the gross profits of the providers of gambling services,ii) the taxes are not restricted to consumption taking place in the UK because the customer (the chargeable person under the New Tax Regime) may not be in the UK at the time of the transaction,
iii) it is discriminatory because it subjects the members of the Claimant to double taxation effects,
iv) it is discriminatory because it creates differential treatment in respect of spread-betting operators and with regard to betting exchanges, and
v) no valid basis for its justification exists. (It does not argue in the alternative that if an available justification exists it cannot be relied on because, for example, the measures taken are not proportionate.)
i) their respective analyses of the legislation that imposes the New Tax Regime, andii) their respective interpretation and application of a number of the same decisions of the CJEU and they both refer to opinions of Advocate Generals Kokott and Sharpston.
Initially both the Claimant and the Revenue asserted that the answers they advance on these issues of EU law are clear and so no reference on them was necessary or appropriate. But, as I have mentioned, the Claimant changed its position on this.
The New Tax Regime
CHAPTER 3 Remote gaming duty
154 Remote gaming
(1) For the purposes of this Part "remote gaming" is gaming in which persons participate by the use of—
(a) the internet,
(b) telephone,
(c) television,
(d) radio, or
(e) any other kind of electronic or other technology for facilitating communication.
(2) Remote gaming is "pooled prize gaming" for the purposes of this Part if all or any part of the gaming payment is assigned by or on behalf of the gaming provider to a fund (referred to in this Part as a "gaming prize fund") from which prizes are to be provided to participants in the gaming.
(3) Remote gaming is "ordinary gaming" for the purposes of this Part if it is not pooled prize gaming.
(4) The Treasury may by regulations—
(a) amend the definition of "remote gaming" in subsection (1), and
(b) make such consequential amendments of section 17(2A) of BGDA 1981 (cases in which bingo duty is not charged on bingo played by means of remote communication) as appear to the Treasury to be necessary.
(5) Nothing in subsection (4)(b) affects the generality of section 194(1).
155 Remote gaming duty
(1) A duty of excise, to be known as remote gaming duty, is charged on a chargeable person's participation in remote gaming under arrangements (whether or not enforceable) between the chargeable person and another person (referred to in this Part as a "gaming provider").
(2) In this Part "chargeable person" means—
(a) any UK person, and
(b) any body corporate not legally constituted in the United Kingdom if the person with whom the arrangements mentioned in subsection (1) are made knows, or has reasonable cause to believe, that at least one potential beneficiary of any prizes from remote gaming under the arrangements is a UK person.
(3) Remote gaming duty is chargeable at the rate of 15% of the gaming provider's profits on remote gaming for an accounting period.
(4) The gaming provider's profits on remote gaming for an accounting period are the aggregate of—
(a) the amount of the provider's profits for the period in respect of pooled prize gaming (calculated in accordance with section 156),
(b) the amount of the provider's profits for the period in respect of ordinary gaming (calculated in accordance with section 157), and
(c) the amount of the provider's profits for the period in respect of retained prizes (calculated in accordance with section 158).
(5) Where the calculation for an accounting period under subsection (4) produces a negative amount—
(a) the gaming provider's profits on remote gaming for the accounting period are treated as nil, and
(b) the amount produced by the calculation may be carried forward in reduction of the gaming provider's profits on remote gaming for one or more later accounting periods.
156 Profits on pooled prize gaming
(1) Take the following steps to calculate the amount of a gaming provider's profits for an accounting period in respect of pooled prize gaming.
Step 1
Take the aggregate of the relevant gaming payments made to the provider in the accounting period and deduct the aggregate of any of those payments that are assigned by or on behalf of the provider to gaming prize funds during the period.
Step 2
If in the accounting period any amount contained in a gaming prize fund to which relevant gaming payments have been assigned by or on behalf of the provider is used otherwise than to provide prizes to participators in pooled prize gaming, multiply each amount so used in the accounting period by the relevant proportion that applies in relation to it.
Step 3
Add the aggregate of the amounts calculated under Step 2 to the amount calculated under Step 1.
Step 4
If in the accounting period any top-up payment is assigned to a gaming prize fund by the gaming provider, multiply the amount of each top-up payment so assigned in the accounting period by the appropriate proportion that applies in relation to it.
Step 5
Subtract the aggregate of the amounts calculated under Step 4 from the amount calculated under Step 3.
(2) For the purposes of Step 2 the relevant proportion, in relation to any amount which is used otherwise than to provide prizes, is—
(a) if the amount relates to a specific game of chance, the proportion of that amount that consists of relevant gaming payments made to the provider in respect of that game,
(b) if the amount does not relate to a specific game of chance but relates to amounts assigned to the fund during a specific period, the proportion of that amount that consists of relevant gaming payments assigned to the fund by or on behalf of the provider during that period, and
(c) in any other case, the proportion of the total amount contained in the fund immediately before the amount is so used which consists of relevant gaming payments assigned to the fund by or on behalf of the provider.
(3) For the purposes of Step 4—
(a) a top-up payment is assigned to a gaming prize fund if the gaming provider assigns an amount (other than a gaming payment) to the fund to satisfy a guarantee given by the gaming provider that prizes of a specified minimum amount will be available in respect of gaming under arrangements made with the provider, and
(b) the appropriate proportion, in relation to such a top-up payment, is the proportion determined in accordance with a notice published by the Commissioners.
(4) A notice under subsection (3)(b) may provide for top-up payments to be ignored for the purposes of Step 4 in a specified case or class of cases.
(5) In this section "relevant gaming payment" means a gaming payment in respect of pooled prize gaming.
157 Profits on ordinary gaming
(1) To calculate the amount of a gaming provider's profits for an accounting period in respect of ordinary gaming—
(a) take the aggregate of the gaming payments made to the provider in the accounting period in respect of ordinary gaming, and
(b) subtract the amount of the provider's expenditure for the period on prizes in respect of such gaming.
(2) The amount of the gaming provider's expenditure on prizes for an accounting period in respect of ordinary gaming is the aggregate of the value of prizes provided by or on behalf of the provider in that period which have been won (at any time) by chargeable persons participating in ordinary gaming.
158 Profits on retained prizes
(1) The amount of a gaming provider's profits for an accounting period in respect of retained prizes is the aggregate of the amounts which cease to be qualifying amounts during the accounting period.
(2) An amount is a qualifying amount for the purposes of this section if, as a result of a person ("P") being notified as mentioned in section 160(1), it has been taken into account in calculating the provider's profits for any accounting period under section 156 or 157.
(3) An amount ceases to be a qualifying amount for the purposes of this section if, otherwise than by virtue of being withdrawn by P as mentioned in section 160(1), P ceases to be entitled to withdraw it.
(4) The Commissioners may by notice published by them direct that subsection (3) is not to apply in a specified case or class of cases.
162 Liability to pay
(1) A gaming provider is liable for any remote gaming duty charged on the provider's profits on remote gaming for an accounting period.
(2) If the gaming provider is a body corporate, the provider and the provider's directors are jointly and severally liable for any remote gaming duty charged on the provider's profits on remote gaming for an accounting period.
(3) Remote gaming duty which is charged on the gaming provider's profits on remote gaming for an accounting period may be recovered from the holder of a remote operating licence for the business in the course of which the gaming took place as if the holder of the licence and the provider were jointly and severally liable to pay the duty.
165 Accounting period
(1) For the purposes of this Part—
(a) a period of 3 consecutive months is an accounting period, but
(b) the Commissioners may by regulations provide for some other period specified in, or determined in accordance with, the regulations to be an accounting period.
(2) The first day of an accounting period is such day as the Commissioners may direct.
(3) The Commissioners may agree with a person to make either or both of the following changes for the purposes of that person's liability to general betting duty, pool betting duty or remote gaming duty—
(a) to treat specified periods (whether longer or shorter than 3 months) as accounting periods;
(b) to begin accounting periods on days other than those applying by virtue of subsection (2).
(4) The Commissioners may by direction make transitional arrangements for periods (whether of 3 months or otherwise) to be treated as accounting periods where—
(a) a person becomes or ceases to be registered, or
(b) an agreement under subsection (3) begins or ends.
(5) A direction under this section—
(a) may apply generally or only to a particular case or class of case, and
(b) must be published unless it applies only to a particular case.
186 UK person
This sectionnoteType=Explanatory Notes has no associated
(1) In this Part "UK person" means—
(a) an individual who usually lives in the United Kingdom, or
(b) a body corporate which is legally constituted in the United Kingdom.
(2) The Treasury may by regulations—
(a) amend the definition of "UK person" in subsection (1),
(b) make provision as to the cases in which a person is, or is not, a UK person for the purposes of this Part, and
(c) make provision about bets made, and arrangements to participate in remote gaming entered into, by bodies of persons unincorporate.
(3) The Commissioners may by notice published by them—
(a) specify steps that must be taken in order to determine whether a person making a bet or entering into arrangements to participate in remote gaming is a UK person,
(b) specify who must take those steps,
(c) specify circumstances in which a person making a bet or entering into arrangements to participate in remote gaming is to be treated as a UK person because of a failure to produce sufficient evidence to the contrary, and
(d) specify circumstances in which a person making a bet or entering into arrangements to participate in remote gaming is to be treated as not being a UK person on the basis of evidence of a description specified in the notice.
i) providers of remote gambling services established in the UK paid tax in the UK on their gross profits (as defined) derived from remote gambling services to customers wherever they lived and so their worldwide remote gambling services at a rate of 15%. It was common ground before me that this could correctly be described a POS tax,ii) providers of remote gambling services established in Gibraltar paid no tax in the UK on the remote gambling services they provided to and which were consumed by persons in the UK, and
iii) providers of remote gambling established in Gibraltar paid tax in Gibraltar on their remote gambling services worldwide (a) at a rate of 1% of turnover in respect of online fixed-odds betting and betting exchanges, and (b) at a rate of 1% of gross profit or gaming yield (as defined) in respect of online casinos (subject to an annual minimum and maximum payment). Again it was common ground before me that this could correctly be described as a POS tax.
i) the position in Gibraltar remains the same, butii) a duty (remote gaming duty) is charged on a chargeable person's (as defined) participation in remote gaming with the providers of remote gambling services whether they are established in the UK, in Gibraltar or elsewhere in the world (the gaming provider),
iii) the rate of that tax in the UK is 15% on the gaming provider's profits (as defined) for the relevant period,
iv) the tax is payable by the gaming providers, and as I understand it such payment is a condition of maintenance of their licence to provide the services, and
v) the providers of remote gambling services established in the UK no longer pay any other gambling duty on those services in the UK.
i) the New Tax Regime applies in an indistinctly applicable manner to gambling operators established anywhere in the world,ii) it applies equally to operators established in the UK as it does to those established in other EU Member States, or indeed the rest of the world, on the basis of the common feature for all of them is that in order to be subject to remote gambling duties, they have to supply relevant gambling services to UK persons (as defined), and
iii) the effect of the common feature mentioned in sub-paragraph (ii) is that each supplier of remote gambling services, wherever it is established, is liable to pay the tax charged on the supply of those services to UK persons (as defined) - and so the UK remote gambling market (so defined) - and, in that sense, the New Tax Regime can be said to create a "level playing field" between all of those suppliers in that market.
i) will no longer be able to provide such services to UK persons (as defined) and so to the UK remote gambling market (so defined) free of UK tax,ii) will incur additional expense in complying with the New Tax Regime and the New Regulatory Framework,
iii) will, until a double taxation arrangement is put in place or Gibraltar changes its tax regime, pay tax in both the UK and Gibraltar on the same business activity with UK persons (as defined).
i) an internal (domestic) tax because of its connection with an internal (domestic) market and so can be correctly and conveniently labelled a POC tax as the Revenue assert,ii) an external tax on a part of the income (which is then taken into account in determining the profit or loss from all sources) of the provider and so can be correctly and conveniently labelled a POS tax as the Claimant asserts.
i) an equivalent change from a POS regime to a POC regime was made to that tax for fiscal reasons, andii) a POC tax, and thus one directed at the economic activity at the point and place of consumption rather than its supply, is or includes a tax that is collected from, and assessed by reference to accounting periods of, the supplier of the goods or services.
i) the relevant supply (or taxable economic activity) was treated as taking place where the supplier was established, andii) the exchequer that received the VAT as part of its overall tax revenues was that of the state where the supplier was established.
i) the rate of VAT on a supply of such services by suppliers based in the UK and in other Member States is set by the UK, because this is the place where the new regime provides that the supply (or relevant economic activity) takes place, and
ii) the suppliers based in the UK and in other Member States will file VAT returns quarterly and, pursuant to arrangements made, will end up accounting to HMRC for VAT on such supplies and so such consumption of services by customers based in the UK.
i) Member States can by their tax legislation charge tax such as VAT or tax on remote gambling services and thus tax an economic activity relating to the supply of goods or services which takes place or can be said to take place in two states by reference to the place where the supplier or the consumer is established,ii) subject to other restrictions, it is open to the UK to charge tax on the supply of remote gaming on a POC basis, and
iii) such a tax regime, and so the New Tax Regime, is a POC tax regime on the supply of such services by reference to where they are consumed or taken up and not a tax on the profits of the suppliers akin to corporation tax or income tax.
i) the analogy with VAT falls on this basis, andii) this difference points in favour of a conclusion that absent harmonisation it would be recognised that the changes to VAT would or could hinder the free movement of services within the Union. In this context, the Claimant referred to and relied on Recital 4 of the Principal VAT Directive (Directive 2006/112/EC).
i) the tax was not referable to or charged on each individual arrangement (and so not like a penny on a pint or VAT), that for an accounting period or an event like the Cheltenham Festival or the Grand National no tax may be payable because the supplier (the provider of the gambling services) paid out more than it took in from arrangements during that period or for that event,ii) the tax was unlike the old gambling duty which was based on a percentage of total stakes and so a certain percentage of each sum placed by a customer,
iii) the tax payable does not have a necessary relationship to the amount or value of the services consumed by a (or each) customer but relates to the supplier's aggregate net receipts for a defined class of customers over a specified accounting period, and
iv) the effect of the deduction of winnings to identify and quantify the taxable sum cannot be correctly described as a matter of procedural mechanics, or a method of calculation, so as to found the result the Revenue asserts that the target and effect of the taxation is to charge economic activity in the UK and so the UK based consumer (as the chargeable person) effectively by reference to the turnover of the provider, because this process of calculation goes to the heart of what is being taxed.
the impact on individuals and households is expected to be negligible as this measure is not expected to have significant impact on availability, price, and payouts of remote gambling… companies based abroad will become liable to UK duty and consequently face an increase in their administrative burden and tax liabilities
i) which of the rival contentions summarised above on the nature and effect (and so the character) of the taxes imposed by the New Tax Regime is correct, orii) whether the point that the definition of a UK person means that a relevant transaction with a UK based customer (consumer) may take place whilst he is outside the UK is relevant or determinative.
Pausing here
i) the answer to the fundamental starting point to the Article 56 issues, andii) the constitutional issues
involve issues of European law that are not acte clair.
The next stage of the Article 56 issues
i) the point that the opinions of AG Kokott on which the Revenue rely provide different analyses for the result sought by the Revenue and indicate that her conclusion has not been clearly established by the case law, andii) there is arguably a difference of opinion and approach between her and AG Sharpston
to found my view that the existence or non-existence of the principle is not acte clair and so should be referred.
Discrimination
i) the Claimant asserts that this gives rise to a differential burden between providers in the United Kingdom and such other providers. It also submits that this effect is contrary to the principle of neutrality as set out in the OECD VAT Guidelines and the approach taken in Test Claimants in the Thin Cap Litigation Case C-524/04, [2007] 2 CMLR 31, andii) the Revenue asserts that this is incorrect. It argues that double taxation is not a feature of the New Tax Regime but of the tax regime in Gibraltar and the difference in treatment is a consequence of the parallel exercise of their fiscal sovereignty.
Justification
i) to level the playing field between UK operators and overseas operators in the manner referred to in paragraph 39(iii) hereof,ii) to ensure that the UK can exercise proper fiscal supervision over this section of the gambling market. This aim includes minimising the risk of gambling service providers avoiding taxation on remote gambling, which would otherwise fall due on their economic activity with UK consumers, by relocating offshore. In other words, avoiding the situation (which in fact developed) in which a significant percentage of the relevant economic activity undertaken by persons and companies in the UK is not subject to the taxation regime intended to tax such economic activity,
iii) to enable the UK to maintain the coherence of the UK tax system in relation to that activity and preserve the integrity of the tax base, and
iv) to increase the UK's tax revenues.
i) current arrangements that were believed to "operate against the interests of the British economy by providing incentives for operators to base themselves abroad", orii) a situation in which it is believed that "foreign operators [are] subject to less stringent regulatory regimes and thereby enjoy an unfair competitive advantage in the GB market".
i) the imposition of duties such as those introduced by the New Tax Regime is a matter clearly within the UK's fiscal competence over which it may exercise its sovereignty, andii) the disadvantages to foreign providers that result from the New Tax Regime can be characterised as consequences of Member States' parallel exercise of such competence.
The Preliminary Issues
The existence of an alternative remedy (here in the First-tier Tribunal).
i) I was not asked to deal with this objection as a preliminary point, the judge granting permission stated that the case raised "very significant points of principle and equally important practical issues for the enforcement of revenue collection", and I have heard full argument over four days, andii) members of the Claimant would then have to wait until they are individually assessed for tax before rearguing the merits of the case before the First-tier Tribunal and this would result in a waste of costs and delay.
i) the Claimant is not any individual taxpayer and will never be assessed for tax. So, if the Claimant has standing to bring this case (and Green J held in the First Judicial Review that it could bring those proceedings – see paragraphs 201-215 of his judgment), then it can only do so by means of judicial review,ii) correctly, it was not asserted that the Claimant did not have standing to bring this judicial review as well,
iii) there is no principle of administrative law to the effect that the Court should refuse to hear a claim by a party who has standing simply because a different party would have an alternative remedy and such an approach would be contrary to the approach adopted by the House of Lords in the (R) EOC v Secretary of State for Employment [1995] 1 AC 1 (the EOC case, in particular at pages 25 and 28A-B), and
iv) the situation in the present case is not comparable to that in Autologic not only because the Claimant is not a taxpayer, but also because the companies there had already been assessed for tax and did not appeal to the First-tier Tribunal, though such an appeal was open to them. Rather they applied to the High Court for a declaration. In contrast, here the members of the Claimant have not yet been assessed.
The Claimant cannot seek to override the UK legislation because it has no directly effective EU law rights
i) the grant of such relief in that case did not depend on the EOC's statutory functions, andii) similar claims have been entertained in other cases in which the claimant was held to have sufficient interest notwithstanding the lack of a directly effective right (e.g. R (Age UK) v Secretary of State for Business, Innovation and Skills [2010] ICR 260).