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In an unobtrusive way, Malta a tiny island in the Mediterranean sea in fact amassed more on-line and gaming companies than any other Western European jurisdiction. Having voted last year to join the EU, it now stands tall among the new members to expand its brand name as a well regulated betting and gaming industry.
Unofficial reports show that over 100 companies are licensed or are about to comply with the legislation. All this has resulted in spite of a low budget on otherwise expensive international marketing. These companies in their infancy already generate upwards of €1 billion in turnover. So what attracts established operators to relocate to Malta? The answer may be its unique taxation package for remote gaming companies combined with a first class regulation and strict impartiality offered to applicants by the licensing Authority. In particular the tax package allows for a 0.5% tax on betting turnover and a flat Lm3,000 monthly charge for class2 operators of casino and poker .The corporate tax rate on net profits is 35% which can be substantially refunded within 3 weeks of filing an application triggered by a distribution of dividends. Another positive advantage is that the Gaming Authority also takes an active interest in license holders to ensure that problems do not escalate in the best interest of player protection. As can be expected there are several main requirements needed to be satisfied before a five year licence is issued such as a rigorous due diligence process on the promoters and compliance testing of software.
In addition, Malta has passed a host of e-commerce laws, player protection and anti-money laundering regulations. It is not a tax haven and does not feature on the blacklist of OECD. As a full European Union member it has signed over 48 tax treaties and is currently undergoing preliminary treaty negotiations with the USA.
Furthermore reliable bandwidth is available by two competing providers and its cost has gone down following the liberalisation of the telecoms sector. Now that the island stands out tall as a competitive jurisdiction it is fine-tuning its legislation to attract more applicants.
The tiny mouse has roared and the sun is shining for a well-regulated and reputable financial centre where betting and online gaming can flourish in a responsible environment that actively discourages problematic gambling. But the sting on the tail came last July.
Malta had its first baptism of fire when a French Court ordered a locally registered horseracing operator to desist from offering its services to French citizens. As a rule, EU member states operate an open policy that shuns monopolies, but the rules on freedom of services are complex and sometimes tortuous. It all hinges on the individual member state's desire to protect its local monopolies from unbridled competition. There have been a number of test cases heard at the European Court of Justice (ECJ) concerning the role of state monopolies that try to prohibit cross-border provision of services. Hot on the heels of the news that Zeturf, a Malta-licensed online gaming operator had been fined by a French court and made to desist from offering gaming services via the internet to the French market has challenged this maxim.
Zeturf offered its gaming services through servers in Malta. Its website states inter –alia that players have to comply with the law in order to be accepted. Typically it explicitly cautions that participation by players in bets and/or games of chance can be subject to legal restrictions and even forbidden in some countries.
On the other hand, Malta too had offered a seven-year monopoly to a lottery operator, thus temporarily preventing competitors from operating on Maltese turf.
The opposition to Zeturf was mounted by PMU, the French state monopoly on horseracing. PMU has won the first round in court but Zeturf has said it will appeal. If it does so, one of the main arguments in the appeal procedure should be the compliance of French gaming restrictions, as evoked by the PMU, with the requirements of European law. It is debatable whether the current French gaming policy meets the latest Gambelli and Lindman ECJ judgments. In general the ECJ considers these restrictions as an infringement on the freedom of establishment and the freedom to provide services provided for in Articles 43 and 49 EC respectively.
In the context of the Gambelli’s judgement the ECJ has ruled that it is for the national court to determine whether such restrictive legislation, taking account of the detailed rules for its application, actually serves the aims which might justify it, and whether the restrictions it imposes are disproportionate in the light of those objectives. Criminal sanctions were taken against Gambelli and his associates on the grounds that their activities contravened Italian law which forbade concerns that were not licensed in Italy from accepting bets from Italian citizens.
In his defence Gambelli who was restricted from passing Italian bets to Stanley Leisure in UK claimed that the Italian Law ran contrary to the spirit of the European Treaty, with regard to freedom of establishment and freedom to provide services. The Italian Court asked the ECJ to decide upon whether the Italian law was compatible with Italy's obligations under ECJ.
Nonetheless, the court's preliminary decision on the Zeturf case so far may have serious repercussions on other foreign online operators involved in cross-border activities. Hence in the ring of legal arena we record that Zeturf is down on the first round but has appealed.
The author is partner
of PKFMALTA
gmm@pkfmalta.com
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