The right of European citizens and companies alike to provide services in any EU member state of their choice has once again been given a wide interpretation by the Court of Justice of the European Union. It is illegal for a member state to tax winnings obtained from casinos situated in other member states while exempting from taxation similar winnings obtained from casinos on its own territory, the court recently concluded. Such an approach restricts the freedom to provide services as enshrined in the treaties.
This case arose from the following facts. Two Italian residents were accused by the Italian tax authorities of failing to declare in their income tax assessment, winnings obtained from casinos situated in other member states. The accused claimed that national legislation regulating such tax assessments infringes the principle of non-discrimination since winnings paid out by casinos in Italy are exempt from income tax. The taxation of the latter winnings is considered to be included in the Italian tax on entertainment.
On the other hand, winnings obtained from casinos situated in other member states must be specifically included in the assessment for income tax. The Italian authorities countered this argument by maintaining that the aim of the national legislation is to prevent money laundering abroad and to limit the flow of capital abroad or the arrival in Italy of capital whose origin is uncertain.
The Italian court filed a preliminary reference before the CJEU requesting guidance as to whether such a national law constitutes a restriction on the freedom to provide services and hence is illegal in terms of EU law and whether justifications related to public policy, public security or public health are acceptable. The court observed that the different tax arrangements provided for in Italian legislation, depending on whether winnings were obtained in Italy or in other member states, dissuade players from going to and playing games of chance in other member states. The fact that gaming providers established in Italy are subject to the tax on entertainment does not make the Italian legislation any less discriminatory since such a tax is not analogous to income tax. The court concluded that the Italian legislation in question gives rise to a discriminatory restriction on the freedom to provide services.
Winnings obtained from casinos situated in other member states must be specifically included in the assessment for income tax
The CJEU maintained that a discriminatory restriction can only be justified if it pursues objectives of public order, public security and public health. It is, however, not justifiable for the authorities of a member state to assume, generally, and without distinction, that bodies and entities established in another member state are engaging in criminal activity.
The court also observed that it is inconsistent for a member state which seeks to combat compulsive gambling, to, on the one hand, tax consumers who participate in games of chance in other member states and on the other, to exempt these same consumers from income tax if they participate in games of chance in Italy.
Such an exemption is likely to have the effect of encouraging consumers to participate in games of chance and is therefore not suitable for attaining the objective of combatting compulsive gambling. The CJEU concluded that there could be no justification for the discrimination being exercised by Italy.
When given the opportunity to declare itself on the fundamental freedoms enshrined in the EU treaties, the CJEU has once again chosen to go down the route which militates in favour of EU citizens and companies. Not only measures which impede European service providers from providing their services in any member state of their choice must be considered as constituting a restriction to the freedom to provide services.
Justifications given by member states for imposing such obstacles will be carefully scrutinised by the court in order to ensure that they are actually necessary and proportionate to the aim that the state is seeking to achieve.
mariosa@vellacardona.com
Mariosa Vella Cardona is a freelance legal consultant specialising in European law, competition law, consumer law and intellectual property law.