European Court Says Italy’s Taxation Policy is Discriminatory

The Italian Government took a blow this week, after the European Court pointed out that its taxation policy was both discriminatory and inconsistent with European regulations.

Italy has a controversial past – and present – with gambling. In their struggle to stop illegal casino operations, lawmakers have cooked up some pretty strict Italian gambling laws and taxation policies. Unfortunately, these regulations are far from accomplishing their noble goals, but they do however ruin all the fun for honest gamblers, who actually play on the legal market.

When authorities tried to come up with a way to tax gamblers’ winnings, they realized that taking a part of their earnings would be unfair, considering that they already pay an entertainment tax. But playing outside the country’s borders was a whole different thing, they thought, so they decided that prizes won abroad needed to be taxable.

Professional players at Team PokerStars, Cristiano Blanco and Pier Paolo Fabretti got in a legal argument with tax authorities after officials accused them of failing to declare their foreign gambling wins as income. In a decision now touted as “historic” in the gambling world, a judge ruled that the two players did not owe the Italian government anything.

Discriminatory taxation policy

According to the case files, the tax authorities in Italy said Blanco was guilty of “failing to file income tax returns for all tax periods in the years between 2007 and 2009, and of failing to declare the sum of EUR410,227 in 2007, the sum of EUR25,969 in 2008, and the sum of EUR46,028 in 2009 — those sums corresponding to winnings obtained from casinos located in other Member States and in third countries.”

Authorities also asked Fabretti to pay EUR45,327.48 “on grounds that he had failed to declare the sum of EUR52,000 [from an Italian Poker Tour High Roller Event he won in Slovenia in 2009] which he had won playing poker in a casino situated in another Member State.”

Neither of them was willing to put up with this sort of thing, as they were fully convinced that they did nothing illegal. The country’s laws require gamblers to give away part of earnings that have not been won in Italian casinos, but the two professional poker players appealed their tax bills to the provincial court in Rome, claiming that the taxation policy is discriminatory.

The court asked the European Court of Justice (ECJ) to weigh in on the issue and learned that the Italian tax regulations are in conflict with articles 52 and 56 of the Treaty on the Functioning of the European Union.

Tax policy is inconsistent with EU law

While Italian tax authorities tried to get away with it by arguing that the scheme was necessary to prevent criminal organizations from laundering their money outside country borders, this defense did not stand up. The ECJ said such regulations do not “ensure a coherent implementation of the objective of combating gambling addiction.”

“Although direct taxation falls within the competence of the Member States, they must nonetheless exercise that competence consistently with EU law,” the court added. Lawyers representing the two players noted that the current Italian tax introduces a form of second taxation on amounts that were already subjected to taxes and fees imposed in another EU Member State.

In its recent ruling, the ECJ continued to explain: “The Italian Government states that the winnings made in casinos located in Italy are exempt from income tax in order to avoid double taxation of the same sums upstream on the casino and downstream on the gambler.

“By contrast, winnings from games of chance obtained in casinos established abroad are treated as income. That income must be included in the income tax return and therefore must be subject to income tax.”

One decision to rule them all

The ECJ agreed with the two poker players, so now authorities will have to settle for taxing casinos, Italian poker rooms and online operators alone.

“National legislation such as that at issue in the main proceedings,” the court added, “gives rise to a discriminatory restriction on the freedom to provide services as guaranteed by Article 56 TFEU in relation to not only service providers but also the recipients of those services.”

The poker players were both happy to hear the court was on their side. Soon after hearing the good news, Blanco posted a photo of himself smiling on his Facebook page, along with the message: “We won”.

“I am extremely happy. It’s the end of a nightmare for me,” he told reporters. “I have always been optimistic about this, but everything feels much better now that I have heard the ruling with my own ears. I want to thank the fantastic team of lawyers and fiscal experts who helped us to take home this historical result.”

The European Court’s ruling is clearly one of great importance, allowing players in other countries to easily combat similar taxation policies.