Portugal Gambling Tax

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Portugal Gambling Tax

The Portuguese framework
The Portuguese tax regime for online gambling has been established by Decree-Law No. 66/2015 of 29 April. This regime offers different taxation rules among the diverse forms of gambling activities, namely in what defines the difference between land-based and online game providers. 
Since the entry into force of this Decree-Law, online gambling operators are subject to a special tax treatment, namely in the method used to calculate the tax. Online ‘fixed odds' sports betting companies are subject to tax on their turnover – and the applicable tax rate – online gambling companies may be taxed at a maximum rate of 35% (as introduced by Portuguese State Budget Law for 2020). This special regime for online gambling activities creates an unfavourable framework for these operators.
Article 56 of the Treaty of Functioning of the European Union
From an EU perspective, gambling services fall outside the scope of the Directive 2006/123/EC, which regulates services in the internal market. Thus, the licensing of such services should be made in accordance with the Treaty of Functioning of the European Union (TFEU), namely in light of the freedom to provide services (Article 56) given that it is clear that gambling games are considered services for the purposes of this provision (Schindler and Läärä cases). 
EGBA calls for a flat tax rate based on gross gambling revenue as the popularity of the unregulated market grows among Portuguese gamblers. The European Gaming and Betting Association (EGBA) has urged the government of Portugal to review the nation's gambling tax regime as the 'discriminatory' tax on online gambling has affected player channelization.
Gaming legislation enacted in 2015 opened the market to international betting brands, but high taxes and excessive regulation have so far put a damper on any excitement we once held that Portugal would finally embrace the reality of online gambling. To date, a total of five gaming companies have received online betting licenses in Portugal.
The European Gaming and Betting Association (EGBA) has called Portugal's gambling tax policy 'discriminatory'. The group has urged the government to review how the industry is taxed after a media investigation reported that 75% of gamblers in Portugal are using unlicensed operators. Will Portugal Scrap Plans for 25% Tax on Gambling? Rumors have intensified following a report last week that Portugal's government had decided not to push ahead with a planned budgetary move that would have seen the flat tax rate on online gaming products would become a fixed rate at 25%. Portugal's government could introduce a new flat tax rate of 25% on all types of online gambling revenue, replacing the current sliding scale system. At present, operators pay tax at various rates depending on how much revenue they post and the type of gambling services they offer.
Therefore, any licensing regime of gambling services within the EU should be in line with the freedom to provide services under Article 56. Likewise, there will be a breach of such fundamental freedom if the licensing regime provides for a less favourable treatment of non-residents when compared with residents of a member state. 
A potential breach of Article 56 
This said, the point is: Is the Portuguese tax regime on online gambling games currently in line with the freedom to provide services? We believe the answer is negative, as better explained below. 
The Portuguese tax framework provides for a different taxation system for land-based gambling when compared to online gambling activities, which are subject to a higher taxation. Therefore, a higher tax on online gambling than on land-based gambling certainly affects non-residents more than residents, since most of the operators in the Portuguese online gambling market are foreign entities. Such a difference in treatment constitutes a restriction to the freedom to provide services. 
To be considered as discriminatory, the measure must provide a less favourable treatment between services that are placed in a comparable situation. In this specific case, the European Commission has already confirmed that land-based and online gambling services are comparable activities, as online gambling is just another distribution channel of the same activity. 
At this point, it should then be assessed if the discrimination is justified and proportional under EU Law. In accordance, regarding all economic activities which have not been harmonised – such as gambling – the member state responsible for the restriction in question must demonstrate that it is necessary in order to achieve the declared objective and that such an objective could not be achieved by less restrictive measures. In the specific case of gambling services, there is a whole typical concern: the protection of recipients of the services and the protection of the society against game addiction, fraud, crime and malpractice. However, the general interest that justifies the discrimination cannot be of economic nature, such as the maximisation of public revenue or the need to protect the market position of existing operators.
In our view, there are arguments to sustain that the Portuguese tax regime for online gambling games was introduced to protect public revenue. Thus, the high taxation in this increasingly popular sector leads to the maximisation of public revenue, since land-based providers are more motivated to perform their services – as they are not subject to the special tax regime. In contrast, the online gambling services companies (normally non-residents) are not willing to operate in Portugal given the high taxation that their profits will be subject to. Or even if such operators still want to practice their services, the public revenue will continue to be maximised given the high taxes in the sector.
In summary, the high taxation on the online gambling sector may be justified by public order reasons. However, the existing system is evidently not necessary nor proportionate. In fact, the high taxation constitutes a restriction of the freedom to provide services since it produces an effect comparable to that of prohibiting performing the services. In other words, the restrictive character of the special tax regime for online gambling sets a different level of protection between land-based and online gambling, to a point where it creates a disincentive for non-resident online gambling services providers to carry out their activities in the Portuguese market. 

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The licensing process
i Application and renewalLand-based games of chanceThe concession of land-based games of chance is granted by the Portuguese state through a public tender to private undertakings, incorporated in the form of a limited liability company or equivalent, with its registered office in a Member State of the EU, or in a state that is a signatory state to the Agreement on the European Economic Area, which is bound to administrative cooperation in the field of taxation and the fight against tax fraud and money laundering, provided that, in the case of foreign companies, they have a branch in Portugal.
The public tender specifies all the terms and conditions for the awarding of the concession agreement. These terms and conditions include the cumulative requirements to be met by applicants (good standing, technical and financial capacity), the location of the casino or bingo hall where the gaming activity will be carried out, and the assets allocated to the concession, the period of the concession agreement and the possibility of its renewal and the awarding criteria.
Until 2015, the renewal of the concession agreements in what concerns land-based games of chance was the sole competence of the government. With the amendments made in that year to the legal framework, the renewal of concession agreements is only possible if it is previously provided for in the public tender.
Remote gamblingThe operation of online gambling is granted by means of a licence issued by the Gambling Authority to private undertakings incorporated in the form of a limited liability company or equivalent, as referred for land-based games of chance.
There are four different types of gambling licences available: fixed-odds sports betting, pari-mutuel and fixed-odds horse-racing bets, bingo and other games of chance.
The licence application has to be submitted on the standard form approved by the Gambling Authority duly accompanied by the documents required for the verification of the good standing and the technical, financial and economic capacity requirements.
The applicant must also submit a structuring plan of the gambling technical system containing a document describing the gambling technical system, its location in the national territory, where the front-end recording infrastructure will be hosted, the identification of the categories and types of online gambling to be operated, the mechanisms for player self-exclusion and for preventing the registration of players banned from gambling, the betting limits, the allowed payment methods and the rules for calculating and paying prizes, the way in which all the transactions in the player account are made, how transactions that involve transfers of funds between the operator and the player are processed, and the information security mechanisms adopted.
If the decision on the approval to grant a licence is favourable, the operator has to proceed to the down payment of the licence fees, present the safety deposits and obtain certification of the technical gambling system in order to the subsequent homologation. Only then will the licence be issued and the operator licensee may begin the operation.
Licences are valid for a period of three years from the date of issue and may be extended for successive periods of three years if the operators maintain all the requirements demanded and if the Gambling Authority's audit is successful.
ii Sanctions for non-complianceIn land-based games of chance the non-fulfilment by the concessionaires of their legal and contractual obligations constitutes an administrative offence punishable by the application of a fine and by the termination of the concession agreement.
The general rule is indeed the imposition of a fine or sanction. Only in certain cases (e.g., the concealment of gaming revenues, the failure to deliver or to increase the security deposits or the repeated infringement of the gaming legislation or the concession agreement) may the authorities suspend or terminate the concession agreement.
The concessionaires' responsibilities do not affect the criminal or administrative liability of the respective employees or agents for the infractions the latter may have committed.
The infringement of legal obligations in online gambling constitutes an administrative offence punishable with fines. There are minor, serious and very serious offences of the law and the amount of the fines vary accordingly, from €5,000 to €1 million.
According to the seriousness of the infringement and the fault of the offender, additional penalties may be imposed, such as prohibiting the offender from partaking in any online gambling and prohibiting the right to take part in contract formation procedures or in procedures aimed at granting licences.
Taxation
Portugal Gambling Tax ReturnsGambling in Portugal is subject to different taxes.
Portugal Gambling Tax RecordsLand-based casino games are subject to the special tax on gambling (IEJO), which takes into consideration the different types of the games (games where players play against the casino, games where players play against each other and slot machines) and the geographical gambling area where the casinos are located. The rates grow slightly every five years throughout the concession agreement (until the fifth quinquennium, if applicable).
On average, the rates vary between 4.5 per cent and 36 per cent in terms of gross gaming revenue (GGR).
No other general or local tax is claimed regarding the exercise of the gambling activity.

Prize money won by players is not subject to taxation.
Land-based bingo operated in bingo halls (traditional and electronic) is subject to stamp duty of 25 per cent.
Online gambling is also subject to IEJO, which varies according to the different type of game or bet:
in games of chance (including bingo), and on pari-mutuel horse-racing bets, the IEJO is levied on the GGR of the operator. The IEJO rate on these games varies progressively between 15 per cent and 30 per cent;
in fixed-odds sports, betting and fixed-odds horse-racing bets, the IEJO is levied on the revenue from the amount of the bets placed (turnover). The IEJO rate on these games varies progressively between 8 per cent and 16 per cent; and
in games of chance in which players play against each other and where the fees charged by the operator are the sole revenue deriving directly from operating, and in betting exchanges, the IEJO is levied at the rate of 15 per cent. The revenue deriving directly from the pursuit of activities liable to the IEJO is not subject to corporate income tax and stamp duty. Prize money won by online players is not subject to taxation.
Portugal Gambling Tax RefundState-run games are subject to stamp duty of 4.5 per cent on the amount of the bet and of 20 per cent on the amount of the prize that exceeds €5,000. Stamp duty is borne by players. Mutual horse-racing bets are subject to IEJO at a rate that varies from 15 per cent to 30 per cent of GGR.
Portugal Online Gambling TaxPlayers' winnings are not subject to income tax.