7 June 2010 | By James Swift
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Malta has become a leader in the internet gambling industry. But as James Swift reports, a recent ECJ judgment has resulted in some trepidation over the sector’s future
Malta is a relative newcomer to the EU, but is already one of the fiercest advocates of the pillar of free movement.
Of course, Malta’s championing of the free movement of services is driven by more than just an academic interest in seeing the principles on which the EU was built upheld: a significant chunk of the country’s revenue depends on it.
Before the decision was made to apply to join the EU in the 1990s, Malta was essentially an offshore jurisdiction, relying on tourism and tertiary services to fuel its economy. Since then, the country has gone to great lengths to harmonise subsequent legislation with Europe and make itself an attractive destination for funds and companies. And Malta was granted ascension to the EU in 2004, joining the eurozone in 2008.
In that time the country has also become a leader in the online gambling industry. Malta was the first EU member state to regulate internet gaming when, in May 2004, it passed the Remote Gaming Regulations under the Lotteries and Other Games Act 2001. Malta is now home to more than 250 remote gaming companies, holding over 350 licences.
As well as offering operators a regulated, EU member state, Malta also makes itself attractive from a tax standpoint. Maltese companies are taxed a flat rate of 35 per cent, but shareholders get six-sevenths of the total tax paid back upon payment of dividends. Malta also has a full imputation system, which means dividends will not be taxed again once received by the shareholders.
But just how much of the country’s revenue is dependent upon online gambling is unclear. The subject even became a matter of debate when Malta Labour MP Alfred Sant called on the government to reveal the sector’s contribution to the economy, after his requests for disclosure were rebuffed on the grounds of confidentiality.
Regardless of the lack of hard data, the importance of the gaming sector can be gleaned from the fact that businesses employ around 5,200 people in Malta, who are estimated to contribute 10 per cent of the internet gambling industry globally.
So when the European Court of Justice (ECJ) stated in September 2009, in a case brought by Austrian gaming company Bwin against Portugal’s state-owned sports betting monopoly Santa Casa de Misericórdia de Lisboa, that EU member states could ban gambling websites within their territories, it provoked quite a reaction. Bwin’s shares subsequently dropped 9.5 per cent.
But it was not just the betting companies that were given a scare by the judgment. Malta has set itself up as a jurisdiction for these gaming companies to use as a base from which to penetrate the rest of Europe, so the country’s economy would also lose out if the internet gambling market was to close.
The judgment was seen as an erosion of the fundamental principles on which the EU was based.
“What was previously the position, that derogations [to the principle of free movement of services] must be justified, has been diluted,” argues Adrian Vella, partner at Mamo TCV Advocates in Malta. “Santa Casa has a monopoly in Portugal and this was challenged by Bwin, but the ruling was in favour of monopoly. So it seems the free movement of services has lost some ground.”
What is more, the sentiment of the Bwin judgment was reiterated by Paolo Mengozzi, the advocate-general of the ECJ, in March 2010 when he stated that “the mutual recognition of national licenses for games of chance is not viable as the EU now stands”.
But not everyone thinks the ECJ judgment in the Bwin case is such a bad omen.
“The Portugal case doesn’t add anything new,” says Ian Gauci, partner at Maltese firm GTG Advocates. “It was just saying what others already have - that where there are issues of public policy or there’s a need to combat crime then gaming activities can be stopped.”
Indeed, the judgment only says: “The prohibition imposed on operators such as Bwin of offering games of chance via the internet may be regarded as justified by the objective of combating fraud and crime.”
The bone of contention is how far member states can go under the umbrella of public interest and the protection of consumers.
“We’re faced with a situation of uncertainty where the term ’public interest’ is being used or misused and where no certain parameters are established,” says Silvana Zammit, head of real estate and property development at Chetcuti Cauchi Advocates.
But Malta is insulated by its tough regulatory scheme, overseen by the Lotteries and Gaming Commission (LGA). When the LGA first started issuing licences, the process was viewed as cumbersome and unnecessarily stringent, but since member states have started bringing actions against Malta-registered companies, the regulations look set to provide an effective shield.
“The [Bwin] ECJ judgment and the recent opinions by the attorney general Yves Bot have created a spectre of uncertainty over the remote gaming industry. However, the sector is still vibrant,” says Gauci. “Malta has built a solid reputation; maintaining this, being reactive and flexible and keeping a watchful eye on how the gaming market is evolving will ensure that the industryprospers, and maybe also tap new opportunities for Malta.”