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EU Court Guts Italian Gambling Tax Scheme

(CN) - Italy, like many other places, wants its share of a gambler's lucky streak at a casino. But national law exempts winnings at Italian casinos, on the idea that gamblers already pay an entertainment tax to play.

But Italian nationals don't pay an entertainment tax when they gamble in, say, neighboring Switzerland, so the Italian government considers anything won outside the country as taxable.

This scheme led Cristiano Blanco and Pier Paolo Fabretti to run afoul of the Italian tax authorities, for failing to declare their gambling wins in another EU state as income. In Blanco's case, officials found he had neglected to declare over $610,000 in winnings outside Italy while Fabretti owed nearly $66,000 for his lucky streak in another member state.

Both men appealed their tax bills to the provincial tax court in Rome, arguing that Italy's gambling tax exemption amounts to discrimination since it does not apply equally to everyone. For their part, Italian tax authorities say the scheme is necessary to prevent nefarious crime syndicates from laundering their money in casinos outside Italy.

The Rome court asked the European Court of Justice to weigh in on whether the law constituted a restriction on the freedom to provide services, and whether Italy's money laundering concerns justified such a restriction.

In a judgment issued Wednesday, Europe's highest court found that the Italian scheme creates disparate tax arrangements for gamblers depending on where they choose to play. This could potentially dissuade gamblers from playing in other member states' casinos - a violation of the EU's guarantee of free services, the court said.

"It must be borne in mind that the freedom to provide services under the EU constitution requires not only the elimination of all discrimination on grounds of nationality against providers of services established in other member states, but also the abolition of any restriction - even if it applies without distinction to national providers of services and to those from other member states - which is liable to prohibit, impede or render less attractive the activities of a provider of services established in another member state where he lawfully provides similar services," the Luxembourg-based court wrote.

The freedom to provide services applies to both providers and recipients of the services equally, the court added.

As to whether Italy's concerns over money laundering justified the scheme, the EU court acknowledged that it has afforded member states a great deal of latitude to regulate gambling, given the moral, religious and cultural differences from state to state. But public policy objectives cannot be used to validate discriminatory restrictions, the court said.

The high court added that while Italy may have a problem with organized crime, the vast majority of the criminals' money is made outside Italy anyway. And the tax scheme probably doesn't deter compulsive gambling either, since it actually encourages gamblers to frequent casinos in Italy instead, the court concluded.

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