Cross-border Internet gambling was a major topic of discussion last week at a meeting among the Organization for Economic Co-Operation and Development* Tax Working Group Party No. 9 on Consumption Taxes. The meeting, which took place April 25-26, was attended by all OECD country members.
The Danish delegation, lead by Peter Sehestedt, used the working party as a platform to bring the development of cross-border Internet gambling--and the consequences it will have for the sovereignty of the OECD countries with regard to gambling legislation--to the attention of the 30 countries
Sehestedt, head of section, Ministry of Taxation of Denmark, presented his paper, "Gambling over the Internet: An international regulatory challenge with important fiscal implications," thereby directly criticizing the United Kingdom. He was supported only by the delegation from Ireland. It is important to stress, though, that the other delegations didn't have an opportunity to look at the paper before the meeting. This may also explain why the other Nordic countries, the natural allies of Denmark, didn't say anything at all during the meeting. (They did not send their specialists on gambling nor they did they have he opportunity to discuss the paper with them.)
The U.K. delegation was rather stunned by the very direct intervention from Sehestedt and replied that they would "analyze the paper at home."
The Working Party No. 9, with its main focus on the problems in the field of consumption taxes caused by cross-border e-commerce, concluded that it would continue to monitor the gambling area. This could be important because it means that Denmark, or any other country, will be able to raise the issue again in one or two years.
Sehestedt feels Internet gambling will indeed become a major concern of the OECD. "I am sure that the negative development in tax revenues caused by cross-border gambling clearly will show the need for the OECD to work out common guidelines," he said.
The question remains, however, will international cooperation and regulation by then still have any priority?
The chapters of Sehestedt's paper are:
- Introduction: still the state-controlled gambling companies and private charitable and non-profit organization account for the majority of the gambling opportunities available in most of the OECD countries;
- The impact of the Internet on cross-border gambling;
- A collision between different Internet policies; and
- The crucial question of jurisdiction
Sehestedt wrote in this essential chapter:
"The question of jurisdiction is at the heart of this conflict. Most OECD countries are allowing Internet gambling in accordance with the principle that companies can only direct their offers at each country's own citizens. This approach has been expressed, for example, in connection with cases under the European Court where the EU-countries have made statements in support of preservation of their right to regulate their own gaming markets. The recently adopted EU directive on e-commerce (Directive 2000/31/EEC) in a similar way expressed this approach by virtue of exempting gambling from the scope of the directive. Another approach has been expressed by a smaller group of OECD countries, which so far have not hindered their national bookmakers from directing their gambling business at other countries. These countries support the principle that a gambling transaction occurs in the country where the bet or wager is accepted. The unhindered access to direct sales at other countries, however, is increasingly causing problems in the other OECD countries. Today one can identify three different Internet policies with regard to gambling within in the OECD community:
Prohibition (e.g. USA)
Globalization (e.g. UK)
National Regulation (e.g. Denmark)
Although the policies of prohibition and national regulation are pursuing different goals, they are not incongruous: They both agree on the idea, that the gambling market on the Internet must be regulated according to the principle, that national gambling companies can only direct their offers at each country's own citizens. The policy of globalization, on the contrary, is basically opposed to the other two policies, as it accepts the idea of one global market on the Internet."
New Proposals by the UK
This chapter concludes that, "The British proposals risk evoking the development of a truly global gambling market, where a policy of tax reductions can be seen as the only way to regain control of the market. On a global market this could very well end up in a process of harmful tax competition."
Conclusions
The last two paragraphs of the conclusions are:
"The proposals based on the principle, that a gambling transaction occurs in the country where the bet or wager is accepted, may trigger a process of globalization of the markets in the other countries. The result may very well be tax competition as the countries try to attract the 'global' industry in an attempt to (re)gain control of their national markets.
"The new proposals by the U.K. highlights the need for the development of clear guidelines that can ensure that gambling over the Internet is directed solely at a country's own citizens, or alternatively only at citizens in countries with whom special international agreements have been entered into."
Immediately following last week's OECD meeting, one of Sehestedt's colleagues in Sweden scheduled a meeting, to be attended by ministers in Nordic European countries, in Stockholm for June. The delegates will discuss international cooperation and regulation on cross-border Internet betting.
Sehestedt told IGN, "My mission was to make sure, that the issue of gambling is not taken off the agenda of the working party, which so far has been the only international forum of importance, which has taken an interest in gambling via Internet. In the long run I considered it to be important that we preserve a forum where the states can come together and discuss this matter--once it is obvious to everyone that they are loosing the control of their markets.
"This time I more or less used the working party as a platform to get the attention of the countries in order to point at the development, which is going on right now, and the consequences it will have for the sovereignty of the OECD countries with regard to gambling legislation. And I think I got their attention.
"As for the Americans, I am afraid, they did not make promises of any change of policy. I only got one
possible explanation of why they have not so far taken any international initiatives.
I think this event signals a turning point and the beginning of a new international process, where the Nordic
countries could end up playing an important/leading role (not surprisingly as the rate of Internet penetration
is very high here) in bringing the international society together, including the USA"
Click here to view Peter Sehestedt's proposal.
*The OECD groups 30 member countries sharing a commitment to democratic government and the market economy. With active relationships with some 70 other countries, NGOs and civil society, it has a global reach. Best known for its publications and its statistics, its work covers economic and social issues from macroeconomics to trade, education, development and science and innovation.
The OECD plays a prominent role in fostering good governance in the public service and in corporate activity. It helps governments ensure the responsiveness of key economic areas with sectorial monitoring. By deciphering emerging issues and identifying policies that work, it helps policy-makers adopt strategic orientations.
The member countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom and the United States.