GBGA challenge to place of consumption tax – CJEU finds no interstate trade between UK and Gibraltar

The Court of Justice of the European Union (the “CJEU”) yesterday handed down its judgment on the reference made to it in the case brought by the Gibraltar Betting and Gaming Association (the “GBGA”) against the UK Government in respect of the extension of gaming and gambling duties to operators outside the UK.

The GBGA had sought to challenge the UK Government in extending the duties by way of judicial review at the High Court on the basis that extending UK taxes to overseas entities in this way contravened Article 56 (“Article 56”) of the Treaty for the Functioning of the European Union. Article 56 prohibits restrictions on the provision of services between Member States of the European Union unless such restrictions can be justified, for example on the basis that they are proportionate and suitable to achieve a legitimate objective.

The CJEU was referred three questions by the UK court.

The first related to the constitutional status of Gibraltar, that is whether the trade in services between operators in Gibraltar and customers in the UK constitute the provision of services between Member States of the European Union for the purposes of Article 56.

The second question was whether the extension of gaming and gambling duties constitutes restriction on the right to the free movement of services for the purposes of Article 56.

The third question was if there was an ostensible restriction, whether the extension was justified under the law of the European Union

The CJEU chose to answer only the first of these questions. It determined that Gibraltar, despite its unique constitutional position, fell squarely as part of the Member State that is the United Kingdom for these purposes and that the provisions of services between the United Kingdom and Gibraltar thus did not engage Article 56 at all.

The CJEU then stated in light of this conclusion “it is unnecessary to answer the second and third questions”. This is unfortunate.

In the first place, the second and third questions raised important - and as yet unanswered - questions regarding the extent of the protection provided by Article 56 in the context of taxation provisions which straddle Member States. Some clarification of the issues here by the CJEU would have been generally useful.

In the second place, the determination of the first issue in not necessarily conclusive of the issues in this case. That is because the extension of duties by the UK Government was not limited to operators in Gibraltar but to all overseas operators who provided services into the UK including operators across Member States of the Union. It is true that the majority of operators who provide gambling services into the UK are in Gibraltar but there are other operators, say in Malta, who are most certainly in another Member State.

The action will now return to the UK courts.

Olswang LLP (one of the three firms which merged to become CSM Cameron McKenna Nabarro Olswang LLP on 1 May 2017) acted for GBGA on this challenge.