EFTA Asks Norway to Level the Playing Field

16 August 2002

Regulators with the European Free Trade Agreement are asking that Norway either impose a tax on its local lotteries or give tax exemptions to foreign lotteries.

The group is saying that Norway gives a competitive advantage to its own lottery by making the winnings tax free and making Norwegians' awards from foreign lotteries taxable if they are over NOK10,000 (US$1,293).

"There should be no restriction on what measures, including taxation, that sovereign governments can use to implement their social policy."

-Tim Ryan

Norway has been given three months to either make the tax on local lotteries equal to the tax on foreign lotteries or face legal action.

Tim Ryan, a member of the Australian Registered Bookmakers Advisory Council's Internet Betting Committee and an expert on cross-border e-commerce issues, said the regulators' complaint was probably the result of complaints from would-be lottery exporters to Norway.

Even more likely, he said, is that the officials are looking for a test case to expand the precedent set by the Oct. 21, 1999 judgment in the European Court on the case of Questore di Verona vs. Diego Zenatti. In that case, the court ruled that European member states can limit the spread of gambling in their state to prevent the problems, both moral and financial that can be caused by gambling.

Ryan believes there are a variety of reasons this could be a test case, including the fact that lotteries generally come with high taxes because that is how they raise money to benefit the state.

"Lotteries generally operate under very high tax--on the basis that the taxation, and profit if it is state run, is hypothecated to 'good causes' in the jurisdiction in which the lottery is operated," he said.

Ryan also believes the situation is analogous to the Zenatti case because it reflects the ability of a member state to set its own rate of taxation on gambling awards.

"Taxation... is just one way, though a very effective one, if implementing social policy in respect to gambling--gambling as found in the Zenatti decisions--is a matter for each sovereign state as a matter of social policy," he said. "There should be no restriction on what measures, including taxation, that sovereign governments can use to implement their social policy."

Ryan said that if he were the spokesman for the Norwegian government, he would tell the EFTA regulators that Norway's decision to tax foreign lottery winnings is already an "equalization" policy.

"A foreign lottery can only be won if the Norwegian citizen buys tickets in that lottery--without paying the 'consumption tax' that is levied on all lottery tickets sold in Norway," he said. "If that is the case, then the winnings should be taxed instead. We are implementing our social policy on gambling using all measures available to us as the sovereign state of Norway."

Anne Lindner can be reached at anne@rivercitygroup.com.