Authors: Louis Botha and Louis Kotze (Cliffe Dekker Hofmeyr)
In the 2019 Budget Speech, the Minister of Finance announced that draft legislation pertaining to the long-awaited gambling tax would be published for public comment in 2019. We discussed this announcement in our Special Edition Budget Speech Alert of 20 February 2019. The draft legislation will possibly be published with the draft Taxation Laws Amendment Bill in the next few months, but while we wait for the release of the draft legislation, we take the opportunity to consider some of the issues that have arisen with gambling tax in foreign jurisdictions.
Of particular interest is the recent judgment in London Clubs Management Ltd v Revenue and Customs Commissioners  EWCA Civ 2210, a decision handed down by the United Kingdom’s Court of Appeal, Civil Division (COA). In this case, the COA was asked to pronounce on the tax treatment of “non-negotiable chips” issued by casinos (or other similar institutions) as a promotional tool, and whether the use of such chips should be used to calculate an entity’s liability for gaming duty, as referred to in the United Kingdom’s Finance Act 1997 (FA).
Gambling tax in the United Kingdom
The FA regulates gambling tax in the United Kingdom (UK). The COA indicated that the provisions of the FA apply to equal chance gaming and casino games in which the chances are equally favourable to all participants.
As stated in the COA’s judgment, in terms of s10(2) of the FA, the amount of gambling tax that is chargeable is calculated by applying specified tax rates to the “gross gaming yield” of the casino in the relevant accounting period. “Gross gaming yield” comprises the aggregate of the gaming receipts of the casino for the relevant period and the profits for the period if the institution qualifies as a banker as defined in the FA.
Section 11(10) of the FA provides that the aforementioned profit is the amount by which the value of the “money or money’s worth of the stakes staked” exceeds the “value of the prizes provided by the banker to those taking part in such gaming”.
London Clubs Management (Taxpayer) is a company that operates casinos. As a promotional tool, the Taxpayer issued selected customers with a range of means to place certain bets free of charge. The most relevant of these were non-negotiable chips. Non-negotiable chips are differentiable from cash chips as they can only be used to place bets at gaming tables and cannot be cashed in or used to pay for goods or services. If a customer places a bet with a non-negotiable chip and wins, the casino pays out the winnings in cash chips and the customer retains the non-negotiable chip. However, if the customer loses, the non-negotiable chip is retained by the casino.
At issue in this matter was the value (if any) that should be ascribed to the non-negotiable chips in terms of s11(10) of the FA once the non-negotiable chips had been staked and lost by the customer.
After the UK’s First-Tier Tribunal found in favour of the Revenue and Customs Commissioners (HMRC), the Taxpayer decided to appeal the decision to the Upper Tribunal.
On appeal, the Upper Tribunal held that the value of the stake staked was the amount that was put at risk by the player, which amount is the real amount of money or money’s worth that was risked in the game and not the notional amount represented by the face value of the non-negotiable chip. The Upper Tribunal came to the conclusion that the value of the non-negotiable chips staked is nil as these chips do not represent money deposited with the casino, could not be redeemed for goods or services and could not be assigned for value.
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