Tottenham Report: Italy – Taxation on betting collection is nothing more than a display-of-wealth tax on bettors

During the first COVID-19 emergency period in Italy early in 2020, the Italian government introduced an additional 0.5% tax on sports and horse betting collection, as well as virtual betting and betting exchange, in order for the state to finance a fund dedicated to sports (notably: sports actors, sports amateur clubs and sports-competition organisers) – the so-called “Save Sport Fund”.

This additional tax and the relevant implementation notices issued by, respectively, the Minister of Sports and the director of the Italian gambling regulator ADM, have been challenged before the Administrative Court of Rome by different operators.

On one side, betting licensees Lottomatica Scommesse S.r.l., Goldbet S.p.A and Sisal Entertainment S.p.A requested that the Court revoke this betting-collection applicability. On the other side, Betfair Italia s.r.l., Betflag S.r.l and the horse racetracks association Federippodormi requested separately that the Court revisit the additional taxation field of application, as well as its calculation rollout, so as to exclude betting exchange and horse betting.

More specifically, all appeals were first of all aimed at obtaining a suspension, in full or part, of the additional tax on sports betting. All the operators asked the Court to make a provisional decision before proceeding to consider the deeper legal grounds of their claims. The Court did make a provisional decision last month in response to the appeals: It rejected all requests.

According to the Court, the tax-policy choices of an EU member state, while having disincentive effects, may be questioned only if they are not supported by reasons of general interest, or appear to be discriminatory and disproportionate. In other words, the Court ruled that any reason of general public interest prevails over the interest of private individuals, even if it is decidedly prejudicial to them; the only shield offered to betting licensees, in the interest of balancing the parties, is given by the observance of the principle of proportionality.

The Court thus justified its denial of a provisional suspension by stating that this payment obligation must be fulfilled by betting licensees in order to “deal with the health emergency arising from COVID-19 and its effects on sports activities”. In other words, the Court sees the tax from the perspective of a general public interest.

Regarding the aforementioned principle of proportionality, on the other hand, it is interesting to note that, according to the Court, the tax “does not preclude the freedom of establishment and the free services flow”, since it applies to all betting licensees operating in Italy, independently of the EU member state in which they have established their registered office.

However, the most relevant aspect that can be deduced from the Court’s reasoning is certainly the fact that it considered this additional betting tax as an indirect tax targeting the bettors’ display of wealth rather than a direct tax on betting licensee’s revenues.

In quite a straightforward way, the Court stated that this additional tax could be transferred in all or part by the betting licensees to their players, in due consideration of the operators’ need to manage their betting services in a cost-effective manner and the entrepreneurial risks they assume when running a long-term licensed betting activity. The Court did not, however, recognize that when or if the claimants try to pass on this tax to their customers, it will result in the reduction or loss of their customers or business.

In conclusion, the Court, in balancing the interests of said claimants and the protection of the public interests for which the additional tax was designed, did not suspend its payment and referred the parties to the hearing on the merits of the case scheduled to take place on 14 April 2021.

The claimants also filed an appeal before the Council of State, which like the Court refused to suspend the tax obligation before the April hearing.

Sad to say, neither the Court nor the Council of State took into consideration the likely scenario in which transferring the additional tax to their players could lead to licensed operators losing business to illegal operators that are easily accessible over the Internet.

We need to figure out where we go from here.