Thanks to the efforts made from 2015 to 2016 to adjust gambling organization and taxation laws, Romania has become an attractive jurisdiction both for gambling operators and for gamblers.
Currently, the functional legislative conditions for remote gambling allow the Romanian state to capitalise the increasing popularity of online gambling. However, Romania must also be competitive by reference to the jurisdictions that have greater experience in the field, particularly states that also updated their taxation mechanisms at the same pace as the legislative amendments. It is obvious that over the last decade, the gambling industry has become one the most profitable global industries and it is an important source of revenues for those states. Romania could also benefit therefrom.
Currently, one of the biggest drawbacks is that the access of new operators to the remote gambling market is restricted. Practically, the opportunity offered by Law No. 124/2015 whereby stakeholders were guaranteed exemption from criminal and tax liability for the previous period provided that they complied with the new authorisation requirements is already a matter of the past.
In this context, the organic growth of the online gambling market can be encouraged only by assessing and adjusting the existing tax conditions, so that they would become more attractive both to organisers and gamblers alike.
The Existing Tax Conditions and How to Improve Them
Of course, the actual taxation rate continues to be a determining factor in order to establish to what extent gamblers are inclined to consider a tribute to be fair. However, the progressive rates in force, of 1% (for amounts of up to RON 66,760), 16% (for amounts ranging from RON 66,750 to RON 445,000 inclusively) and respectively 25% (for amounts in excess of RON 445,000), applicable to the gross income consisting in gamblers’ withdrawals from online accounts are not prohibitive in any way. Moreover, it is precisely such rates which determined professional players to move their tax residence to Romania, in order to benefit from these tax conditions.
However, in practice, the fulfilment of tax liabilities which are generally accepted as more than reasonable proves to be problematic. More precisely, the beneficiaries of revenues from remote gambling are bound to annually submit a tax statement (namely Statement 200), which would include all the revenues from this activity until 25th May of the following year.
In parallel, an online gambling organiser/ payer of revenues is bound to send information to each beneficiary regarding each gross income received by the latter during the financial year, until the last day of February of the current year for the previous year.
By this deadline, organisers must also submit in their turn an informative tax statement (namely Statement 205) for the previous year, where each gross income would be highlighted for each taxpayer.
For gamblers, the fulfilment of the declarative obligation consists in using the statements received from the gambling organisers on whose platform they obtained revenues in the previous year for preparing the tax statement. Once filled out, Statement 200 must be submitted to the relevant office of the National Agency for Tax Administration (Romanian: Agenția Naționala de Administrație Fiscală – ANAF). The taxpayer has almost three months for the whole process (from the end of February, when the taxpayer is supposed to receive the statements on the withdrawals from operators to 25th May, which is the deadline for submitting the annual statement). Of course, one should also take into account the profile of this type of gambler, who prefers to gamble in a familiar environment instead of going to a gambling/ casino room. Certainly, going to the tax authorities to submit Statement 200 is not one of his/her priorities.
On the other hand, although organisers are supposed to have the necessary resources to comply with the declarative obligations, they encounter technical obstacles. Statement 205 is unable to accommodate the volume of data which gambling operators have to report, as it allows the registration of maximum 500 payments on the form or up to 10,000 in an appendix thereto. However, the number of individual withdrawals carried out in one year exceeds by far 100,000 for each of the operators authorised to carry out their activity in Romania. Thus, both the operators and the authorities have found year after year compromise solutions for which taxpayers allocated additional resources (such as the submission of appendices in hard copy with the annual statement of withdrawals for 2015 or the configuration of a specific type of electronic document which the computer system of ANAF would be able to read).
As far as the substance is concerned, these obligations aim at double checking the voluntary compliance of online gamblers. In the unrealistic assumption that 100% of them diligently declare their revenues from the previous year by 25th May, the authorities must engage in their turn considerable resources to issue and send the related taxation decisions. Once they are sent, taxpayers have 60 calendar days to pay their tax liabilities. Therefore, in the best-case scenario, the tax related to a withdrawal made on the last day of the previous year reaches the state’s treasury in 7 months. In practice, this period is likely to exceed one year.
Starting from the premise that all the three stakeholders (the state, the online gambling operators and the participants) have time and resources to lose in order to ensure the payment of tax liabilities that they all consider to be fair, there is also the question of adjusting the taxation mechanism.
In line with other opinions expressed by the stakeholders, we believe that a first improvement that could be made regarding the tax treatment applicable to the revenues obtained by gamblers from online gambling activities is the introduction of rules on income tax withholding. Practically, such a measure would render consistent the taxation mechanism for all gambling revenues obtained by Romanian residents, since currently revenues obtained in the offline environment are taxed by withholding (except for revenues obtained at poker festivals, for which such withholding measures could also be applied).
WIN – WIN – WIN
In this way, Romania would move even closer to European jurisdictions that have a tradition in facilitating access to online gambling, such as the UK, Denmark or Malta, where fiscal liabilities exclusively fall under the responsibility of organisers (gamblers’ earnings are not subject to taxation, the fees are paid by organisers and, as applicable, by reference to the amounts gambled when placing the bets).
Of course, in such case, the tax on the income earned in Romania would remain an obligation of the participants, but the amounts actually received by them would be net amounts, the related fees already being retained and subsequently transferred to the state budget by operators. This nuance can be easily disregarded by the income beneficiary, as long as organisers deal with the relationship with the tax authorities.
The tax authorities would no longer have the aforementioned informative/ declarative obligations and could set up internal systems by which they would ensure the automatic compliance with these simplified fiscal conditions.
Last but not least, the state would no longer need to engage resources to ensure the collection of taxes on gambling revenues and, moreover, it would have money available much earlier (the obligations withheld when making the payment are declared and transferred to the state budget until the 25th of the month following that when the payment is made).
In other words, all stakeholders would benefit.
Legislative Process to Amend the Tax Code and the Good Timing
Summing up the benefits, it follows that the opportunity of implementing such amendments is immediate. However, not before taking into account the following two issues.
First of all, the Tax Code can only be amended and/ or supplemented by a law, and the provisions of such a legislative act should enter into force after at least 6 months as of its publication in the Official Journal.
Adjustments adopted by emergency ordinance are an exception for which shorter deadlines for the entry into force can be provided, but not less than 15 days as of the date of publication.
Second of all, one should take into account a transition as smooth as possible from the current taxation system to one that implies the withholding of tax liabilities for the revenues obtained by online gamblers.
The urgent change of the taxation treatment requires transitory rules for the period between the entry into force of the new provisions and the end of this year, the amendment of the existing forms, in order to accommodate two periods with different taxation methodologies (similarly to 2015), details that would require the allocation of higher resources by the state and the taxpayers (participants and organisers alike) for compliance.
Such inconveniences could be easily avoided if the legislator would pursue the implementation of these measures since the beginning of the next taxation period (namely 1st January 2018), thus also contributing to the predictability of tax legislation in Romania, strongly shaken by the recent emergency ordinances on other taxation areas.
It should however be understood that the date of entry into force is not the same as the date when such measures are adopted, and the legislative process is a lasting one, which should involve both the representatives of the National Gambling Office and those of the bodies in charge with monitoring, verifying or sanctioning the industry-related activities, as well as the representatives of the associations of gambling operators.
Therefore, less than two months are left by the date when the law meant to improve how to tax the revenues of online gamblers should be published in the Official Journal, so as to have effects as of 1st January 2018. Under these circumstances, the legislative measures can be adopted only by an emergency ordinance.
Regardless of what will happen, one thing is certain. By accumulating various budgetary pressures from measures the opportunity of which is to be proven, Romania should not miss the chance to remain in the select group of jurisdictions that adapt to the needs of a growing industry, particularly when such an effort does not involve additional costs.
Alexandru MĂNUCU, Tax Deputy Manager with Țuca Zbârcea & Asociații