Reprinted from Tax Notes Int'l, October 17, 2011, p. 184

The European Commission on September 20 approved Danish legislation liberalizing the country's gambling market, stating that even though the lower tax rate the legislation provides for online casinos versus traditional Danish casinos constitutes state aid, the benefits of a liberalized Danish gambling market outweigh the downsides that could arise from the difference in taxation. (For a European Commission release (IP/11/1048), see Doc 2011-19919 or 2011 WTD 183-19.)

As of January 1, 2012, it will be legal to provide licensed online betting or casino services in Denmark. The Danish authorities will be entitled to block Danish access and credit card payments to nonlicensed websites.

Background

The new Danish legislative package, which will enter into force on January 1, 2012, consists of four new statutes: the Gaming Act (spilleloven), the Gaming Tax Act (spilleafgiftsloven), the Danish Game Act (loven om Danske Spil A/S), and the Gaming Distribution Act (spiludlodningsloven).

The primary purpose of the legislation is to update the Danish gambling legislation, which consists of laws that in some cases are more than 100 years old. The new legislative package serves to collect and reenact the large number of former Danish gambling acts, as well as to liberalize the Danish gambling market, thereby opening it up to international online gambling service providers.

The legislation, which was passed by the Danish parliament back in June 2010, had to await EU approval because of objections by some land-based casinos. They claimed that because the legislation provides a 20 percent tax rate on gross revenue for online casinos compared with rates of 40 to 75 percent for landbased casinos, it created unfair competition and violated the EU state subsidy rules.

The Liberalization

The liberalization of the Danish gambling market allows gambling service providers to offer online casino and betting services in Denmark. Providers can be persons or companies, both inside and outside the EU/ European Economic Area. The development is therefore of interest to international online gambling service providers with players located in Denmark. Providers established outside the EU/EEA must, however, appoint both a fiscal and a legal representative in Denmark.

International online gambling service providers are not required to have or set up computer servers in Denmark if their server is located in a country with which Denmark has an information sharing agreement. Denmark only has such an agreement with Alderney (one of the Channel Islands), but more are expected soon.

The license fee for a standard Danish five-year gambling license consists of an application fee, an annual fee based on expected annual income, and a gross income tax. This is illustrated in the table.

Smaller gambling providers can apply for a maximum income license, a one-year license that allows for a maximum yearly income of DKK 1 million (about $181,000). When applying for a maximum income license, the applicant must pay a joint fee of DKK 50,000 (about $9,070), which covers both the application fee and the annual fee.

Players in Denmark are not subject to Danish income tax on winnings from licensed online betting and casino sites.

A gambling provider wishing to offer online betting or casino services in Denmark must submit an application with the Danish gambling authorities. The deadline for licenses to be effective January 1, 2012, is October 17, 2011. The gambling authorities may grant dispensation from this deadline to persons or companies submitting their applications after this date and thus allow them to provide online gambling services in Denmark after January 1, 2012. It is unknown what criteria the gambling authorities will use when assessing a possible dispensation.

Because the period between the application deadline and January 1, 2012, is very short, the gambling authorities have announced that they will only issue oneyear licenses under the standard license scheme. These temporary standard licenses will automatically be extended to five years upon the gambling authorities' review and acceptance of the application.

The new gambling legislation empowers the Danish authorities to use shielding measures against unauthorized gambling providers. The authorities will have the right to block access to all websites of, and all credit card payments to, nonlicensed gambling providers. It is likely that the Danish authorities will choose to use these powers as soon as the legislation enters into force.

Comments

The reasonably low tax rate of 20 percent on online betting and casinos, and the power of the tax authorities to block the sites of nonlicensed providers, provides an interesting possibility for new and established national and international online gambling providers that want to enter the Danish market. If providers miss the October 17, 2011, license application deadline, they should apply for a dispensation to prevent any shielding measures from being taken against their services.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.