Players rating

This publication is dedicated to the analysis of legal regulations of the gambling business in countries of the European Union. The article offers a review of regulations and practices that have allowed or prevented the EU countries from implementing the optimal legal and tax regulation of gambling. We hope that our article will be interesting and useful for those who tend to get a better understanding of the gambling industry.

Gambling-Related Legislation in EU Countries

At the moment, the European Union does not have the competence to regulate the gambling business. Thus, the common EU legislation on gambling does not exist. Therefore, member states independently regulate this market, which leads to the existence of 28 national markets of the corresponding variations of gambling games.

All EU countries have gambling laws. The vast majority of countries are characterized by the adoption of national legislations that establish a unified legal regime for gambling on the entire territory of the country. However in some states (primarily federal), regional authorities are authorized to adopt local gambling-regulated laws on the corresponding territory.

For example, in Austria, casinos, lotteries, card games and poker games are regulated at the federal level, whereas sports betting and slot machines located outside casinos are regulated at the level of each member of the federation (land).

In Spain, the gambling industry is regulated at both central (national legislation) and local levels. Each of the 17 autonomous regions of the country adopted its own legislation on the basis of federal powers provided by the central government.

Casinos are regulated locally in Italy.

Germany is characterized by its own peculiarities. The Interstate Treaty on Gambling, which is periodically being updated, is valid at the national level, and each land adopts its own legislation in compliance with the conditions provided in this agreement. However certain types of games of chance and some aspects of the gambling business are regulated by federal laws of Germany.

There is no unity among EU countries on how to regulate various types of gambling. Is it necessity to be limited to one or several laws? Some countries have a single legislative act covering all types of gambling. We are talking about the UK, the Netherlands, Poland, Romania, and Sweden. Other countries have decided to adopt branch laws. For example, in Ireland there are the Gaming and Lotteries Act and the Totalisator Act. In Italy, each sector of gambling services is regulated by a separate law, whereas in Lithuania there are the Gaming Law and the Law on Lotteries.

The update of gambling-related legislation that has been occurring for last decade is one of the key features of gambling in the EU countries. Countries that have not yet implemented updated laws (for example, Ireland) are going to do this in the near future.

The following factors are the main reasons for this pan-European phenomenon:

  • The old legislation was inconvenient and inefficient for regulation of new types of legal activities in the gambling industry, which appeared as a result of the development of modern technologies, primarily gambling services on the Internet;
  • The old legislation did not allow regulating the market properly, since it had undergone significant structural changes due to the rapid development of online gambling. In particular, old laws did not allow solving the problem of money outflow from the national market to foreign online operators;
  • Due to the lawsuits of the European Commission that were supported by the Court of Justice of the European Union, the national legislation of a number of EU member states was found to violate some obligations regulated by the constituent treaties of the European Union. We are talking about the obligation to guarantee such fundamental freedoms of the EU internal market as the freedom of founding companies and the freedom of providing services. At the moment, thanks to the decision of the Court of Justice of the European Union, there is a clear concept that gambling should be regulated primarily as a service. As a result, EU member states started opening national markets of gambling services for operators registered in other EU member states;
  • The attitude of EU citizens towards gambling has become more favorable compared to previous decades. This can be explained by changes in the general culture of European societies, and thanks to the development of the gambling industry under the concept of socially responsible games.

The efforts made notwithstanding, legislative regulation of gambling cannot be considered to be sufficiently effective. Independent research groups show that more than 50% of online gambling services are provided illegally in most EU countries.

However it is important to note that to a large extent this situation is caused by tax legislation, which plays a crucial role in regulating the gambling market. This explains why in the gambling industry it is common to assess the market potential on the basis of the comprehensive analysis of both industry and tax legislation. In the 2000s, many EU countries were forced to introduce liberal regulation of the gambling market under pressure from the factors mentioned above. However at the same time, most of them chose to impose a significant tax burden on gambling. As experience shows, this leads to the reduction in the national regulated market, money outflow to the countries with favorable conditions for operators of online gambling services, and hence it is necessary to mitigate tax pressure.

Definition of Gambling

The scope of gambling-related legislation is primarily determined by the definition of 'gambling'. In addition, it depends on types of gambling that are allowed in the country and the way of providing gambling services: offline gambling facilities or online services via the Internet.

Definition of Gambling in EU Legislation

Although the EU does not have special laws on gambling, there are separate EU directives containing the definition of the term "gambling services." They allow defining the meaning of the term "gambling." The most recent definition is available in the Fourth EU Anti-Money Laundering Directive (EU 2015/849). According to it, gambling services are:

Services that provide making bets at your own request with monetary units in games of chance, including skill-based games such as lotteries, casino games, poker games and sports betting, which are available in particular locations, by any means at a distance, by electronic device or any other technology that facilitates communication.

Earlier Directives contained similar but more concise definitions of gambling. There was a definition that reflected the essence of gambling: "making bets with monetary units in games of chance."

Games of Chance: Various European Traditions

The term "game of chance" is used to define any game where it is necessary to bet and is possible to win money or other prizes. It is important to note that the outcome depends entirely or to a large extent not on the gamblers' skills but on chance. This term comes from the French phrase "jeu de hasard", which is literally translated as 'game of chance.' The impact of randomness on the outcome of such games is reflected in many European languages. For example, the law on gambling in Poland is called "Ustawa o grach hazardowych". The same logic is observed in the German term "Glucksspielen", which is formed from the words "Gluck" (luck) and "spielen" (play).

However in other languages such as Russian the term is not related to chance and randomness. The term rather implies a special mental state of excitement, which accompanies gamblers during the gameplay. There is no connection with the concept of risk or chance as in the initial French phrase 'jeu de hasard.'

Gambling-related legislation of the EU countries gives a very good definition of the concept of "gambling." Gambling is defined as an activity in which players are provided with the opportunity to obtain winnings. At the same time, the winnings entirely or to a certain extent depend on circumstances or unpredictable events. In addition, at least one of the players loses his or her bet.

However all definitions of gambling include at least three signs:

  1. It is necessary to make a bet that has some value (games played 'for fun' are not supposed to be games of chance).
  2. The luck but not skills determine entirely or to a certain extent whether you win or lose;
  3. If a player wins, he or she receives rewards.

However some types of economic activities can formally have signs of gambling, but actually they don't belong to gambling. Thus, in order to avoid the application of the legislation on gambling to such activities, some norms are adopted to withdraw personal life insurance, certain types of state loans, prize draws for advertising purposes, as well as non-commercial games where a predetermined limited number of persons (for example, gambling that allows funding a certain charitable event) may participate, from the legislation on gambling.

Games of Skill

Experience shows that it is important to define gambling and its variations as precisely and accurately as possible, since any obscurities ultimately give rise to numerous disputes between the state, operators and gamblers. In legal practice, one of the most common problems generated by the ambiguous definition of gambling is the qualification of so-called "games of skill".

An essential sign of gambling game is the dependence of its outcome on coincidence or chance but not on the skills or knowledge of players. However in some types of gambling, players' skills and knowledge are still very important. Thus, the legislation of certain countries distinguishes two different types: games of chance (chance-based games) and games of skill (skill-based games). The latter include betting and certain types of card games (for example, poker). This distinction has legal consequences, which are of fundamental importance.

Poker- Game of Skill or Game of Chance?

The Administrative Court in Muenster issued a decision No. 9 L 13/08 on April 3, 2008 in which it was mentioned that poker was a game of chance but not a game of skill and knowledge. As a consequence, poker games were only allowed in state-owned casinos and could not be offered online.

At the same time, on July 15, 2014, the Financial Court of Muenster adopted a decision in accordance to which professional poker players should be liable to income tax on their payouts for victories. Thus, this decision created an ambiguous situation when tax authorities considered poker as a game of skill, since only in such case winnings are subject to income tax. At the same time, the administrative and regulatory authorities treated poker as a game of chance, which allowed them to ban this game online.

It is interesting to mention the practice of U.S. courts to treat poker games.

The Court of Appeals in New York in its decision on August 8, 2012 in the case 'United States v. DiCristina'confirmed that poker is a game of skill rather than a game of chance. This means that the US federal gambling laws are not applicable in this case. In particular, it was pointed out in the court decision that poker is a game of skill in which "an improvement of skills increase players' chances of winning and affects the individual deals, as well as series of deals" and "players who are poker experts use a number of abilities, including counting, knowledge of human psychology, as well as the ability for observation and manipulation." This court decision allowed representatives of the gambling industry to hope that online poker will finally become legal. However their hopes were in vain: in February 2014, the Supreme Court of the United States cancelled this decision without examining the nature of poker, referring only to the direct poker ban in accordance with the laws of the State of New York.

It is interesting to note that disputes about the nature of certain types of gambling with the aim of avoiding ban date back to the Middle Ages. In medieval Europe, chess has become a very popular and widespread gambling game. In this regard, both secular and ecclesiastical authorities began to impose bans on this game. In 1061, Cardinal Damiani forbade the Catholic clergy in his decree to play chess, which he considered to be "the invention of the devil" and "indecent game." According to regulations, the Bishop of Florence was deprived of his rank for playing chess. In his defense, the bishop stated that chess required skills, and therefore this game "does not look like other gambling games."

Gambling Taxation

The taxation system on gambling has a decisive influence on its development: an adequate taxation system facilitates legal gambling activities and prevents illicit ones, which is indispensable for the healthy development of the gambling market. Thus, a favorable tax climate leads to a significant increase in budget revenues, with the exception of a so-called snake-bites-its-tail paradox, when state budgets lose billions of gambling revenues as a result of harsh tax conditions.

What Is More Suitable for Gambling - Turnover Tax or Income Tax?

Given that the gambling business has a number of features compared to other kinds of business activities, there are three types of tax regulation of gambling:

  1. General taxation when gambling is taxed in accordance with the rules common for all kinds of business, including general income tax and VAT;
  2. Special taxation when gambling is taxed according to a separate taxation system tax on betting turnover and tax on gross gambling revenue;
  3. Combined taxation when special requirements are used along with the general rules of taxation.

In the EU countries, the special approach prevails, which means that the most common types of gambling taxation systems are tax on stakes and gross gambling revenue. Tax on stakes or turnover tax is imposed on the entire amount of bets made by gamblers. In other words, it is imposed on the entire amount of money spent by gamblers, regardless of their results. As for tax on gross gambling revenue (GGR), the basis for taxation is the difference between the amount of all bets made and the amount of all payouts made to gamblers for a given period of time, which is determined before deducting all other expenses of operators.

The EU countries have recently switched to taxes on gross gambling revenue due to the fact that this approach to gambling taxation has proved to be the most relevant for this sphere. This is explained by the fact that the turnover tax does not take into account some specific features of certain types of gambling.

On the one hand, the turnover tax is really relevant for games that have a fixed percentage of winnings/losses. We are talking about lotteries and other types of games that operate on the basis of random number generators or betting where the operator's tax for organizing such activities is fixed. This is due to the fact that the operator's income for such kinds of gambling depends only on the number of gamblers and the size of their investments, and thus the operator's income is a share from the total turnover of gamblers' bets.

At the same time, the turnover taxation is not relevant for other types of gambling (for example, betting). Why does this happen?

  • Firstly, the percentage of the operator's income from the total betting turnover is not fixed.
  • Secondly, such kinds of gambling are low-margin. For example, the average margin for betting is 5-7%, whereas in lotteries, the margin value reaches 30-60%.
  • Thirdly, the amount of bets made by gamblers usually does not match the sum of money that is actually transferred to the account of the operator, since gamblers can use the funds that they have won without withdrawing them from accounts for further betting. As a result, the betting turnover will significantly exceed the real amount of funds transferred to the account of the operator.

Thus, the turnover taxation is commercially unprofitable for the abovementioned kinds of gambling, since it does not allow making competitive offers on the low-margin market. It is also worth noting that marketing costs (bonuses, free chips, free spins, etc.), which are not considered to be winnings, are usually not included in the total costs when calculating gross gambling revenues.

In the EU countries, the situation with special taxes on gambling is as follows:

The experience of France can be considered to be a negative example of the use of turnover taxes on certain types of gambling. In 2010, France set high betting turnover tax rates when the licensing regime was introduced for online betting operators. As a result, licensed national operators lost competition to illicit and offshore operators. The legal market dropped to 30% of the total market. Therefore, the scheduled budget revenues from the gambling industry were not received, and the French government publicly admitted in 2014 that the gambling taxation regime was inefficient.

Another example can be illustrated by Bulgaria. When the government set a 15% gross gambling turnover tax, almost all national operators left the market, since such a tax burden was commercially unbearable. A few years later, the government realized its mistake, introducing a 20% gross gambling revenue tax instead of the 15% turnover tax. As a result, the majority of gambling operators returned to the Bulgarian market even though the tax rates were quite high.

So, the development of the legal gambling business and its transformation into a reliable source of budget revenues requires a differentiated approach of using turnover taxes for games of chance (lottery, casinos, slot machines), which should correlate with the margin size.

It is possible to apply turnover taxes that don't exceed 4-5% for other kinds of gambling (in particular, for sports betting, which occupies the largest share of the market of gambling services) due to their low marginality.

At the same time, taking into account the European experience, principles of common sense and integrity, it is a more advanced approach to impose a tax on gross gambling revenue (GGR) whose rate should range from 10 to 20%.

According to experts and volumes of budget revenues, among the EU countries the UK, Malta, Belgium, Latvia, and Cyprus can serve as examples of the effective tax policy in the gambling business.

The case 'Royal Scandinavian Casino v. Denmark': Excellent Tax Rates for Online and Offline Gambling

In September 2014, the decision of the EU Court confirmed the compliance of the Denmark's tax legislation concerning the two-level gambling-related taxation with the EU laws.

A taxation system of gross gambling revenue was introduced in Denmark. According to it, the activity of online gambling operators is taxed at 20%, while gambling operators providing offline (land-based) services had to pay 45%. In this regard, Royal Scandinavian Casino appealed to the Court of Justice of the European Union with the requirement to equalize the tax burden for online and offline operators, justifying their demands by the fact that such differentiation provides online operators with assistance from the state and violates the rules of fair and integral competition.

The Danish government argued that this difference in tax rates is due to the fact that online operators on the Internet have to compete with gambling operators from other countries, so that this two-level system actually provides equal conditions for online and offline operators. In fact, such decision of the Danish government contributed to the stimulation of domestic online gambling operators.

As a result, the Court of Justice of the European Union supported the government of Denmark.


We have tried to analyze the key issues that arise during legalizing gambling business and to identify key principles that should be adhered to in order to take into account the positive and negative experience of the legal gambling regulations in EU countries. Analysis of experience in the legal regulations of the gambling industry shows that:

  • In many European countries, gambling is a legal and budget-forming sector of the economy. The corresponding activities are regulated at the legislative level.
  • Any moratorium on gambling is an ineffective tool for regulating such a sphere of human life, especially when such kind of entertainment is available on the Internet and in neighboring countries.
  • It is possible to protect the vulnerable part of society from the risks associated with the gambling addiction only via provision of suitable regulations in conditions when gambling is absolutely legal, as well as when regulators and competitive pressure are present. Such conditions create real incentives for gambling to comply with the legislation requirements and principles of socially responsible games.
  • Total ban on gambling is a way to strengthen the corruption component in the activities of law enforcement agencies and gambling shadowing with the subsequent activation of illicit activities controlled by organized crime.
  • Prohibition of gambling negatively affects the development of other sectors of the economy, including tourism, horse breeding, professional sports, sports analytics, and sports media.
  • Ban on gambling in any country will inevitably lead to money outflow from this state to countries where gambling is legal, since gamblers meet their requirements directly in such countries or via the Internet.
Players rating
Write a comment
Typed 0 synbols, min 50, max 2000
You rated
Validation error
Check the data you entered is correct