On January 19, 2017, Advocate General (“AG”) Szpunar delivered his Opinion in case C-591/15, The Gibraltar Betting and Gaming Association Ltd.  In this case, the Court of Justice of the EU (“CJEU”) must decide whether Gibraltar and the UK are to be treated as if they were part of a single Member State for the purposes of EU law.  Alternatively, the UK High Court asked the CJEU whether Gibraltar should be considered a separate territory to the UK within the EU, or simply a non-EU Member State.   Depending on the answer to this question, free movement of services does, or does not apply between the UK and Gibraltar (Article 56 TFEU).

The Gibraltar Betting and Gaming Association (“GBGA”) initiated the case against the recent UK remote gambling point of consumption tax. The new  tax requires all online gambling operators that provide services to UK residents to pay a 15% tax on the so-called gross gaming revenue (“GGR”).  This would significantly impact online gaming companies.

This post analyzes the Opinion of AG Szpunar on the questions posed by the UK Court. Should the Court follow the AG, and as a consequence of Brexit, the impact for the online gaming industry in the UK and Gibraltar will be significant.

AG Opinion: Single Member State

In his Opinion, the AG argues that EU law applies to Gibraltar, as a territory for whose external relations are managed by another Member State, based on a combined reading of Articles 52 and 355(3) TFEU. This has several consequences: (i) should Gibraltar commit a breach of EU law, legal proceedings must not be initiated against Gibraltar, but against the UK; (ii) Gibraltar is not entitled to initiate proceedings against a deficient Member State since only the UK holds this right (see § 38).

In light of this, the AG argues that free movement of services does not apply to the relationship between the UK and Gibraltar. In his opinion, the 15% tax should be considered a “purely internal situation” to the United Kingdom as a single entity, so that Article 56 TFEU does not apply to trade between Gibraltar and the UK (see § 22).  Note, of course, that an AG Opinion is not binding on the Court, although they are often followed by the CJEU.

Possible Consequences for the Online Gaming Industry 

Should the CJEU follow the AG Opinion, in the light of Brexit, consequences for the Gibraltar-based online gaming operators may be significant.

First, for the purposes of EU law, the assimilation between Gibraltar and the UK as a single Member State would mean that Brexit would impact Gibraltar identically as it does the UK. If the United Kingdom leaves, so does Gibraltar.  If the Gibraltar-based online gaming industry wishes to retain access to the EU internal market, a special arrangement will need to be negotiated.

Second, in light of the ‘hard Brexit’ announced by Theresa May on January 17, 2017, the UK (and thus Gibraltar) will likely be treated as a third country. Since the UK Prime Minister wishes to negotiate a Free Trade Agreement (“FTA”) with the EU, this does not bode well for the Gibraltar-based online gaming industry.  In the past, the EU has consistently refused to make market access commitments on gambling services in FTAs with third countries.  Concretely, an analysis of the FTAs with Peru and Colombia, and South Korea, shows that the European Union has consistently excluded gambling commitments in its agreements with those countries, even if its counterparts have undertaken commitments in this service sector.

Conclusion

In summary, if the CJEU follows its AG, and decides that the UK and Gibraltar are a single Member State for the purposes of EU law, the online gaming sector in the UK will need to ensure that Gibraltar is not forgotten in the agreement to be negotiated between the EU and the UK following Brexit. If not, Gibraltar-based online gaming providers will be deprived from offering their services into the EU internal market, unless they relocate to an EU Member State.