This article is an extract from GTDT Gaming 2023. Click here for the full guide.
Context
In mid-December 1992, at the European Council meeting in Edinburgh, EU member states discussed the issue of Gambling in the internal market for the first time. They agreed not to pursue any harmonisation of gambling activities at the European level. As a result, the EU gambling debate largely shifted towards the Court of Justice of the European Union (the Court) being responsible for ensuring that national regulatory frameworks comply with EU law.
Gambling activities have been excluded from the scope of several pieces of secondary legislation, including theServices in the Internal Market Directive (2006/123/EC). At the end of 2017, the European Commission (the Commission) even decided to close infringement and complaints proceedings in the gambling sector.
Since the early 2020s, the gambling sector has witnessed a rise of online gambling operators as a result of technological development and some measures introduced during the covid-19 pandemic, which created an environment in which illegal gambling activities could flourish. Member states are now faced with the challenge to stop these illegal activities.
The Court has indicated on several occasions that member states can implement a policy of controlled expansion, which can involve new and attractive low-risk games, new distribution techniques and an appropriate level of advertising to protect consumers and fight illegal gambling operators (eg, the Placanica case – joined cases C‑338/04, C‑359/04 and C‑360/04, section 55). In an order from the Court, it was stated that an increase in the commercial activities of the holder of the monopoly on games of chance could be the result of a channelling of illegal activities into the controlled gaming networks (see Fluctus et al (C-920/19)).
Furthermore, in the past year, there has been a significant change concerning anti-money laundering (AML) risk assessment in the gaming sector. Online gaming received a ‘high-risk’ (Level 4) evaluation and casinos received a ‘moderate-risk’ (Level 2) evaluation (the same as lotteries). Additionally, terrorist-related financial threats to online gambling were assessed for the first time, and exchangeable tokens used in video games were assimilated to cryptoassets. Similarly, important case law was recently developed regarding taxation and cross-border gambling services (Stanleyparma and Stanleybet Malta (C-788-18) and Admiral Gaming Network (C-475/20 to C-482/20)).
This chapter will address a number of important aspects related to gambling that derive from the Court’s most relevant case law to show how the Court deals with this economic activity of a ‘peculiar nature’ (Schindler (C-275/92), section 59).
Schindler: the founding case
A key step in the delimitation of the legal framework for gambling in European law was the Court’s judgment in the Schindler case in 1994.
Several member states contested the competence of the European Union in relation to games of chance on the basis that this activity did not fall within the notion of ‘economic activity’ within the meaning of the Treaty on the Functioning of the European Union (TFEU) and, therefore, could not be subject to the principle of freedom to provide services, now enshrined in articles 49 and 56 of the TFEU.
Nevertheless, the Court considered lotteries and games of chance to fall under the scope of economic activity within the TFEU, specifying that it was an activity of a particular nature with regard to the cultural, religious and moral aspects of lotteries and games of chance in each member state. As a result, the Court also decided in various cases that those activities cannot be subject to the normal rules of competition.
To what extent must the organisation of gambling in the member states comply with EU law?
In the absence of EU harmonisation on gambling activities, and in line with the outcome of the Schindler case, member states are free to set the objectives of their policy on betting and gaming in accordance with their own scale of values and, where appropriate, to define in detail the level of protection sought. In addition, the Court has explicitly denied the application of the principle of mutual recognition in the field of gambling, meaning that a member state must not recognise the controls and rules set by another member state.
This does not mean that member states are free from limitations when organising their gambling markets. Any national measure that creates a framework in which gambling services cannot be offered freely throughout the internal market of the European Union can be considered a restriction of the freedom to provide services enshrined in article 56 of the TFEU.
When a member state implements legislation restricting free movement principles, notably the freedom to provide (gambling) services, this is to be considered a derogation from the general principles, and it must meet certain conditions to be justified.
In any case, limitations to the freedom to provide services (or freedom of establishment) can be justified under the following conditions:
- they are imposed for reasons of public order, public security or public health; or
- they are imposed for ‘overriding reasons in the public interest’ as defined in article 52 of the TFEU, including consumer protection, combating fraud and crime and combating money laundering (eg, Läärä and Others(C-124/97)). In these cases, the national measures in question may not be discriminatory and must be proportionate to the objectives they aim to achieve. This proportionality test is an important aspect of the Court’s case law on national gambling restrictions.
For EU law to be relevant, it must first be applicable to the case at hand. In general, this hurdle is quite easily handled, as explained by the Court in the BONVER WIN case (C-311/19) in late 2020. By referring to the Berlington Hungary and Others case (C‑98/14), the Court held that services carried out by a provider, without moving from the member state in which he or she is established, for recipients established in other member states, constitute the provision of cross-border services for the purposes of article 56 of the TFEU. Nevertheless, the Court recalled that a cross-border situation cannot be presumed to exist only on the sole ground that EU citizens from other member states may avail themselves of those service opportunities (eg, Pólus Vegas (C‑665/18)). Regarding the possible relevance of the number of customers from another member state, the Court rejects the idea that a de minimis rule should be introduced in the field of the freedom to provide services because it would jeopardise the uniform application of article 56 of the TFEU within the European Union.
How are gambling policies and regulations of the member states shaped or restricted by EU law?
Broadly speaking, there are two related fields in national gambling policies and laws affected by EU law, and most notably the case law of the Court:
- what policy is or can be chosen to restrict gambling with a view to protecting consumers and safeguarding public order; and
- how that policy is implemented in practice.
For instance, a gambling policy can encompass principles such as a monopoly operator for lottery games, a concession model for betting licences, a restriction on the number of casinos in the territory of a member state and a restriction on advertising.
The way the policy is implemented relates to:
- which entity can serve as the monopoly lottery operator and how it is appointed;
- how operators can acquire a betting concession;
- who operates the limited number of casinos in a member state and how; and
- what advertising restrictions are created and how violations of those restrictions are sanctioned, etc.
Both aspects often go hand in hand; a specific gambling policy can be considered a proportionate restriction, but only if implemented in a correct and coherent manner.
Both the conferral of exclusive rights to a single body (monopoly) and the attribution of licences have been recognised by the Court as potentially proportionate measures to limit exploitation of the human passion for gambling and to avoid the risk of crime and fraud related to games of chance. Equally, the coexistence of a monopoly for certain games of chance and concessions to private operators for other games of chance (dual system) can be a proportionate measure in light of the objectives pursued (see Sporting Odds (C-3/17)).
In Dickinger and Ömer (C-347/09), the Court specifically recognised the legality of a monopolistic model with regard to online gambling. Likewise, in Markus Stoss and others (joined cases C-316/07, C-358/07, C-359/07, C-360/07, C-409/07 and C-410/07), the Court held that a monopoly may only satisfy the requirement of proportionality, provided that is accompanied by a legislative framework suitable for the holder of the monopoly to pursue the objectives underpinning the monopoly model in a consistent and systematic manner.
A licensing or concession model is also a viable gambling policy approach. With regard to a casino concession system, the Court ruled in Engelmann (C-64/08) that limiting the licence duration for a casino to 15 years can be justified by the concessionaire’s need for a sufficient length of time to recoup the investments required to set up a gaming establishment.
Previously, service concessions were not governed by any of the directives by which the EU legislature has regulated the field of public procurement. The applicable rules for authorities granting concessions were grounded on the principles of non-discrimination and transparency derived from article 56 of the TFEU and the Court’s case law on that subject. However, the Concession Directive (2014/23/EU) currently applies to certain gambling service concessions (see also joined cases C-721/19 and C-722/19) but not to lotteries.
Still, the granting of concessions for lottery services should, in principle, be in accordance with the Court’s case law on non-discrimination and the subsequent obligation of transparency. Nevertheless, if a member state opts to grant a state-owned or directly controlled company the right to exclusively offer lottery services, it is not required to comply with these principles of non-discrimination and transparency. It may simply appoint the service provider of its choice. In Sporting Exchange (C-203/08), the Court found that a monopoly licence can be granted to either a public operator whose management is subject to direct state supervision or a private operator whose activities are subject to strict control by public authorities.
The Court held that while restrictions on the number of operators may, in principle, be justified, the restrictions must, in any event, be designed to genuinely reduce the opportunities for gambling and to limit gambling activities in a consistent and systematic manner (eg, Gambelli (C-243/01)) in order to serve to achieve the underlying gambling policy objectives (and not, in reality, to increase state revenue from gambling, etc). In many cases, the examination of this consistency in the context of a controlled expansion policy focuses on advertising issues.
Finally, enforcement and sanctions form a key role in any national gambling policy. This, too, must be in accordance with EU law, as found by the Court in Landespolizeidirektion Steiermark (C-231/20). Criminal sanctions for infringing gambling laws constitute restrictions to the principle of free movement of services; therefore, a national court must specifically assess their proportionality under article 56 of the TFEU. This holds true if the restrictions from the gambling policy in itself were already scrutinised and found compatible with EU law.
How is gambling advertising regulated from an EU perspective?
In Placanica, the Court recognised that advertising on a certain scale and the use of new distribution techniques can fall within the ambit of a controlled expansion policy. The Court further noted in Ladbrokes Betting & Gaming and Ladbrokes International (C-258/08) that a policy of expanding games of chance cannot be regarded as consistent unless the scale of unlawful activity is significant, and the measures adopted are aimed at channelling consumers’ propensity to gamble into lawful activities.
In Markus Stoss, the Court made it clear that any advertising by the holder of a public monopoly must remain measured and strictly limited to what is necessary to channel consumers towards authorised gaming networks. Advertising cannot aim to encourage consumers’ natural propensity for gambling by stimulating their active participation in it, such as by trivialising gambling or by increasing the attractiveness of gambling by means of enticing advertising messages holding out the prospect of major winnings (see Gmalieva (C-79/17)).
In 2019, by way of an order, the Court clarified its case law on advertising and gambling in the case of a dual system of organisation of the market in games of chance in which the advertising practices of the holder of the monopoly on lotteries and casinos are intended to encourage active participation in the games, such as by trivialising the game, by conferring on it a positive image by virtue of the use of the proceeds for activities in the public interest or by increasing its attractiveness by means of eye-catching advertisements that hold out the promise of large prizes. The Court explained that, while an increase in the commercial activities of the holder of the monopoly on games of chance requires particular attention when examining the coherent and systematic nature of the rules in question, the increase could be the result of a channelling of illegal activities into the controlled gaming networks; therefore, the national system in question cannot be declared in contradiction with EU law solely on the ground of the advertising practices. This ruling indicates that a case-by-case assessment of advertising and commercial policy by monopoly holders to determine compatibility with EU law (see Fluctus et al).
Online gambling regulations
In Liga Portuguesa (C-42/07), the Court rejected the application of the principle of mutual recognition and established the core principles of the member states’ discretionary power in the field of online gambling. A key element in the reasoning of the Court is that internet-based games of chance involve different and more substantial risks of fraud by operators against consumers compared to the traditional markets for those games, owing to the lack of direct contact between consumer and operator. The Court found internet games to be more dangerous than physically offered games, even when regulated and controlled by the competent authorities of the consumer’s member state of residence. Member states are, therefore, allowed to impose proportionate restrictions on the offer of online gambling services to their citizens.
In Carmen Media (C-46/08), the Court clearly recognised the added dangers of games of chance over the internet, which should be taken into account in assessing the proportionality of the measures put in place by the member states. A stricter approach may be considered a requirement, and a prohibition measure covering any offer of internet-based games of chance may, in principle, be regarded as suitable for pursuing the legitimate objectives determined – such as the protection of young persons – even though the offer of those games remains authorised through more traditional channels.
The responsibility for an effective enforcement system and tackling illegal online gambling lies with the member states.
New Commission proposals may help to indirectly tackle illegal online gambling. As part of the European Digital Strategy, ‘Shaping Europe’s digital future’, the Commission issued new rules on 15 December 2020 to govern digital services in the European Union with two legislative initiatives: the Digital Services Act (2022/2065 (DSA)) and the Digital Markets Act (2022/1925 (DMA)). Both proposals were adopted and published on October 2022 with an entry into force on 1 November 2022 for the DSA and on 16 November 2022 for the DMA.
In particular, the final text of the DSA, which updates the e-Commerce Directive (2000/31), includes new transparency obligations for digital intermediaries active in the European Union, including in respect of online advertising (article 26 of the DSA) as well as a new mechanism allowing users to flag illegal content online, and for platforms to cooperate with specialised ‘trusted flaggers’ to identify and remove illegal content, including illegal gambling content. The focus of the Commission is now on the development of new rules for the use of blockchain and artificial intelligence (the Artificial Intelligence Regulation (2021/0106)), as well as a new regulation named Electronic Identification, Authentication and Trust Services 2.0 on electronic identification and trust services for electronic transactions within the European Union.
Notification requirements
Whether the provisions of national legislation regarding gambling services constitute ‘technical regulations’ and fall under the notification obligation of Directive 2015/1535 (the amended version of Directive 98/34/EC (the Notification Directive)) has been the subject of numerous Court judgments.
In Fortuna (joined cases C-213/11, C-214/11 and C-217/11), the Court ruled that the prohibition on issuing, renewing or amending authorisations relating to limited-win automated gaming activities outside casinos was likely to directly affect the trade in gaming machines and, therefore, their marketing. Provisions that can significantly influence the nature or the marketing of the product can constitute technical regulations within the meaning of the then-applicable Notification Directive.
In M and S (C-303/15), however, the Court referred to Ince (C-336/14) by concluding that provisions of national law that merely set conditions governing the establishment or provision of services by undertakings – such as provisions making the exercise of a business activity subject to prior authorisation – do not constitute technical regulations within the meaning of the Notification Directive. That was confirmed by the Court in Falbert and Others (C-255/16), where the issue concerned publicity for illegal games and compliance with free movement principles. Likewise, in Admiral Sportwetten and Others (C-711/19), the Court ruled that levying a tax on betting terminals does not fall under any of the categories of technical regulations and, therefore, was not a technical regulation that needs to be notified under the Notification Directive.
In addition, in Sportingbet and Internet Opportunity Entertainment (C-275/19), the Court made it clear that any online monopoly imposed by law should have been notified ever since the first Notification Directive. This holds true even if the online monopoly is merely the confirmation of a pre-existing general monopoly. Without notification it cannot be invoked against third parties. According to the Court, the notification obligation is an essential means for allowing the European Union to protect the free movement of services and the freedom of establishment.
AML
After a delay because of the covid-19 pandemic and the Russian invasion of Ukraine, on 27 October 2022, the Commission published its third edition of the Supranational Risk Assessment (SNRA) of AML and terrorist financing risks, which includes all gambling services. The SNRA acknowledges that the gambling sector is characterised by fast economic growth and technological development, with strong growth of the online sector during and after the covid-19 pandemic. In this regard, a number of competent authorities reported that risks arising from online gambling have increased further since the publication of the last SNRA in 2019, which is why online gaming received the high-risk (Level 4) evaluation.
Casinos, for their part, present an inherently high-risk exposure, but their inclusion in the AML and countering the financing of terrorism framework since 2005 has had a mitigating effect. Lotteries and gaming machines (outside casinos) present a moderate level of money laundering and terrorist financing risk. For the former, certain controls are in place, particularly to address the risks associated with high winnings. Land-based bingo is seen as presenting a low level of money laundering and terrorist financing risk because of the relatively low stakes and winnings involved.
Latest developments in taxation and gambling in the European Union
Regarding taxation and gambling, as a matter of principle the EU VAT Directive (2006/112/EC) has excluded betting, lotteries and other forms of gambling services from the application of VAT (see article 135(1)(i)) because of the particularly difficult nature of these services. That provision gives broad discretion to the member states with regard to the exemption or taxation of those transactions, as it allows the member states to fix the conditions and limitations to which entitlement to that exemption may be subject.
In addition, taxation in the field of gambling services has been subject to few judgments by the Court (eg, Lindman (C-42/02) and Blanco and Fabretti, joined cases C-344/13 and C-367/13) but, in recent years, the Court has made new developments with regard to, first, the responsibility of taxpayers and, second, cross-border gambling services. In Stanleyparma and Stanleybet Malta, which concerns Italian legislation on the tax on bets and games of chance, the Court ruled that article 56 of the TFEU must be interpreted as not precluding the legislation of a member state that makes data transmission centres such as Stanleyparma established in that member state liable to a tax on betting jointly and severally with betting operators and their clients, which are established in another member state, irrespective of where those operators are established and the absence of a licence to organise betting. Stanleyparma was found liable, jointly and severally with Stanleybet Malta, for the payment of tax imposed in Italy on the activity of collecting bets.
In Admiral Gaming Network, rendered on 22 September 2022, the Court added to a stream of case law regarding the provision of cross-border gambling services in the European Union. In this case, an Italian rule was reducing the commission and fees to which licensed gaming operators are entitled, applicable only in respect of a specific and limited category of operators, namely operators of gaming machines. The selective aspect of the rule was challenged as being incompatible with article 49 of the TFEU, which the Court did not interpret the same way.
Lastly, regarding the principle of fiscal neutrality applicable in betting, lotteries and other games of chances, a case in Belgium on the distinction between lotteries and games of chance with different taxation led to an action before the Belgian courts, then the Belgian Constitutional Court and, ultimately, the Court for illegal state aid (Casino de Spa et al(C-741/22)). At the time of writing, the case is still pending. One of the issues concerned is the principle of fiscal neutrality between public lottery games and the online lottery games of private operators.
Conclusion
Although EU member states are free to set the objectives of their policy on betting and gaming in accordance with their own scale of values, gambling activities are, to some extent, also impacted by EU law. The continuous requests for preliminary rulings to the Court and the various pieces of EU legislation affecting the gambling sector demonstrate the diversity of legal issues related to gambling (eg, advertising, consumer protection, taxation, digital rules and AML). The numerous rulings of the Court also provide rich and useful guidelines for member states on how to regulate gambling and how to implement a principled policy in practice. It, therefore, is important to be aware of the latest national and European developments relevant to this sector.
