The taxation of profits from poker games in The Netherlands: latest developments

by Dr. Rijkele Betten[1]

 

Introduction

The Courts in The Netherlands, over the years, have had to consider whether poker games[2] are a matter of sport (i.e. to a certain extent, similar to the sport of chess playing) or a matter of gambling.

Undeniably, certain individuals are better at playing poker than others, but perhaps the difficulty of deciding whether playing poker is a sport or a gambling exercise is that, for most individuals, it is surely a matter of gambling and not based on expertise, practice or ability. Nevertheless, the few expert players are able to win significant amounts of money, and regarding such players the Netherlands tax authorities take an interest in taxing their proceeds.

From a tax perspective, there are two issues.

1   Is income tax due on the gains (because the income is to be considered as income from a taxable source); and/or

2   Is the gain subject to gaming tax?

 

It should be noted that gaming tax is, in principle, a pre-levy on income tax; so, if the prices would be subject to income tax, any gaming taxes might be compensated against the income tax due. If gaming taxes exceed income tax, the excess may even be refunded.

From press reports, it appears that professional poker players can, in practice, agree with the Netherlands tax authorities about the taxation of their income from poker games. This may be useful, for example, for securing that travel and accommodation costs are deductible as expenses and also that losses from games may be offset against profits from other games.

The Netherlands Supreme Court recently had to decide again (after an earlier decision in 1998 that poker is indeed a mere gambling exercise) on the issue of whether gaming tax would be due on the proceeds.

 

The facts of the case

A Netherlands resident individual participated in 2010 in two poker games outside The Netherlands. In March 2010, he participated in a poker tournament (apparently in Budapest) and realised a gain of € 10,800 and, in August 2010, in another poker tournament (apparently in Prague) in which he gained € 19,000.

The tax inspector imposed gaming taxes on these proceeds from foreign poker games.

 

The issue

The issue in this case was whether poker is to be considered as a game that is subject to gaming tax, and, if so, whether the income from foreign poker games may be taxed in a different manner than income from a poker game organised in The Netherlands.

 

The Dutch law

In The Netherlands, the only organisation that may organise poker games is Holland Casino.

Holland Casino is subject to a particular gaming tax that is based on their net results from gaming. The taxpayer is, in fact, Holland Casino, and their taxable base is the net income from organising the poker games. In the case of foreign poker games, the taxable base is the prize won during the poker game. In both cases, the tax rate is 29%.

It is not difficult to conclude that profits from foreign poker games are always taxed more heavily than profits from poker games organised in The Netherlands.

 

The European Union law

EU law forbids, pursuant to the provisions of art. 56 of the EU Treaty (TFEU), taxation which discriminates on the basis of the location of where an activity takes place.

Thus, higher taxation of activities exercised in other EU Member States than the taxation of the same activity within the territory of the Member State concerned is not permitted.

 

The Netherlands Supreme Court decision

The Netherlands Supreme Court decided as follows.

The Court confirmed the finding of the Court of Appeal that playing poker is a form of gaming and, as such, is subject to the Act on the Taxation of Gaming Activities.

The next issue then is whether the manner in which gains from foreign poker games within The Netherlands are taxed is in accordance with EU law.

Well, it comes as no surprise that the Supreme Court held that this is not the case, and hence the levying of gaming tax was not allowed.

It should be noted that this means that regarding gains from poker games organised outside the European Union the current taxation method in The Netherlands is still allowed.

 

The reaction of the legislator

The decision of the Supreme Court did not come as a surprise.

The Netherlands legislator is also confronted with a steady growth of internet gambling that is offered from abroad. Although it is not permitted to target marketing efforts of foreign internet gambling to the Netherlands audience, it is rather obvious that this is happening.

After attempts to stop the offerings by prosecution of the organisers, the approach by the Netherlands legislator is now to legalise the offering of gambling by others than Holland Casino.

At the same time, this also provided the opportunity to try and levy gaming tax on foreign poker games and other on-line gambling activities offered from outside The Netherlands.

The legislative proposal has been sent to the Netherlands Parliament.[3] The purpose is that participants in gambling and poker games in The Netherlands will be taxed in the same manner as participants in foreign games. The taxable base is proposed to be amended to the gross proceeds of the player. The tax rate will be reduced to 20%.

 

Conclusion

It still remains to be seen how effective this proposal will be and also whether the Netherlands Parliament will agree with this proposed new manner of taxing income from gaming!

 



[1] International tax consultant.

[2] The cases deal with the variant Texas Hold’em. This note will not deal with the variations in poker games.

[3] Kamerstukken II 2013/14, 33996, nrs. 1-4.