A National Measure that Does Not Apply at Regional Level Is Not Necessarily Selective

Where there is a constitutional division of tax competences, different authorities may tax similar activities at different rates.



This article examines Commission decision SA.34469 on differential tax rates for online and land-based gambling in Spain.[1] In the Spanish political system, regions that have the status of Autonomous Communities have powers of taxation. The issue at hand was which authority ought to tax internet based gambling which by its very nature is accessible to any punter irrespective of his location or the location of the provider.


In 2012 the Commission received a complaint from companies active mostly in land-based gambling that the Spanish Gaming Act of 2011 provided favourable tax treatment to online gambling operators.

The Spanish Gaming Act 13/2011 regulates gambling. According to Article 1 of the Act, the primary objective is the protection of minors, consumers and the public order, as well as the prevention of gambling addiction and fraud. The Act also provides for taxation of gambling when it takes place at national level. This means that in practice land-based casinos or land-based gaming machines are taxed at local or regional level by the respective regional authorities which are the Autonomous Communities. Furthermore, the Gaming Act allows Autonomous Communities, which in Spain have taxation powers, to increase the tax rate defined in the Act up to a maximum of 20% as long as the gambling activity is provided by an operator with fiscal residence in a particular Autonomous Community and the increase of 20% applies to the revenues generated in that Community. The relevant tax rates in the Gaming Act range from 10% to 25% depending on the gambling activity in question.

The complainants claimed that the Gaming Act resulted in differential taxation depending on the distribution channel (online or land-based), with online gaming operators paying lower taxes than land-based operators who carry out equivalent activities.

Existence of State aid

There was no doubt that the Gaming Act, if it provided for differential taxation, involved transfer of state resources in terms of forgone tax revenue, affected trade and distorted competition. The issues at hand were whether it conferred an advantage and was selective.


With respect to advantage, the complainants claimed that by taking into account taxes both at national and regional level, in relation to taxes adopted by Autonomous Communities, land-based operators paid more than online operators.

The Commission, correctly, replied that “(48) […] for gambling activities of national scope and hence subject only to the Gaming Act, the existence of an advantage granted to online operators as opposed to the land-based operators of the same gambling service resulting from the provisions of the Gaming Act cannot be established since both operators are subject to the same tax rates. The tax rates laid down in the Gaming Act cannot therefore be said to confer an advantage on online providers of gambling activities as compared to land-based providers that provide gambling services at national level.”

However, the Commission went on to note that “(49) for those gambling activities that are subject to laws of the Autonomous Communities, the interaction between the regional laws and the Gaming Act may lead to different taxation of the same gambling activity, depending on the applicable legislation. For example, in the case of taxation of casinos, which are typically regulated by the respective Statutes of Autonomy, a land-based casino will be subject to the (more or less advantageous) rates established by the regional law of the Autonomous Community concerned, whereas an online provider of casino services will be subject to the rates of the Gaming Act. Moreover, by providing the authorities of the Autonomous Communities with the power to increase the tax rate by 20% under certain conditions, the Gaming Act opens the possibility of further conferring an economic advantage in the form of reduced taxation to certain providers of gambling services at national level as compared to those established at the level of the Autonomous Communities. It is therefore necessary to examine whether that potential advantage arising from the Gaming Act is selective in nature.”

At first glance, the reasoning of the Commission appears to be correct. If an Autonomous Community levies a higher tax, then an online operator who is subject to a lower national tax certainly derives an advantage. But this confuses competitive advantage in relation to the rivals of a company with advantage in the meaning of Article 107(1) TFEU. Advantage in in the meaning of Article 107(1) is the reduction of normal costs of an undertaking as a result of a public measure that involves loss of tax revenue. In what sense is the central government losing tax revenue if it sets its tax rate at a certain level before any other regional authority has determined its own tax rate? A measure does not confer an advantage in the meaning of Article 107(1) if, after its adoption, another authority decides to levy a higher tax. The authority that adopts the first measure does not forgo any tax revenue. More importantly, to prove that that authority forgoes revenue, it is necessary to show what the tax rate should have been. But there is no other tax rate apart from the one that is set originally. State aid law certainly does not require taxing authorities to set taxes at “efficient” levels or “revenue-maximising” levels. So, if there is no other rate that can function as the benchmark rate, it is meaningless to speak of advantage resulting from loss of tax revenue. If anything can be said, it is that the tax is a burden, not an advantage.


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Now, suppose that an Autonomous Community adopts a lower rate of tax that it applies uniformly to all gambling operators and activities in its territory. Surely, it confers to the operators in its region a competitive advantage. But does it grant State aid? The answer is no. Autonomous Communities have taxation powers, so their measures are general in scope, even if they have limited geographic coverage. Although their tax rates are lower than corresponding national rates, they still cannot be said to lose tax revenue because in order to prove loss of revenue it is necessary, as explained above, to identify the rate that would have applied otherwise. In this case there is no other rate at their level of government. Admittedly, lower taxes do confer some kind of advantage. But this is not the advantage that is caught by Article 107(1) TFEU.

Perhaps what the Commission had in mind was that the Gaming Act, by applying to gambling activities of a national scale, exempted gambling activities of regional or local level and, as a consequence, the Spanish state lost potential tax revenue. But the Commission did not reason along these lines, so it is not possible to infer that this was its frame of reference.


Next, the Commission turned to the question whether the measure was selective in nature. It referred, at the outset, to the case law established by the judgment of the Court of Justice in joined cases C-78/08 to C-80/08, Paint Graphos. The Court said in paragraph 49 of its judgment that “in order to classify a domestic tax measure as ‘selective’, it is necessary to begin by identifying and examining the common or ‘normal’ regime applicable in the Member State concerned. It is in relation to this common or ‘normal’ tax regime that it is necessary, secondly, to assess and determine whether any advantage granted by the tax measure at issue may be selective by demonstrating that the measure derogates from that common regime inasmuch as it differentiates between economic operators who, in light of the objective assigned to the tax system of the Member State concerned, are in a comparable factual and legal situation.”

The sequence of the steps that must be taken to determine selectivity is clear. First, the normal tax system is defined and then deviations are identified by considering the objectives of that system. The Commission did exactly the opposite. First, it considered whether land-based and online operators were in the same situation and then defined the tax system that applied to them.

The problem with this approach is that to determine the similarity or difference between operators one has to define it in relation to something else, a benchmark. As will be seen below, the Commission implicitly assumed the benchmark to be the nature of the services offered. The question, of course, is that even if this is a reasonable benchmark, is it the benchmark required by Article 107(1)?

The Commission then argued that “(53) […] online and land-based gambling operators are in a comparable factual and legal situation. In essence, it is the same gambling activity, although provided through different channels. Even though each channel might have its own intrinsic features, the existence of such special features does not lead to the existence of separate markets for online and land-based gambling activities. The complainants state that both groups of gambling operators usually offer the same type of games (bingo, casino games such as baccarat, blackjack or poker, slot machines etc.) to the same type of customers, using the same technology although with little variations. There is no evidence that shows that customers do not easily switch from one channel to another. Furthermore, land-based casinos also provide online games where players place stakes via monitors with similar software than those of the online gambling products.”

“(56) The Commission thus concludes that online and land-based gambling activities are in a comparable legal and factual situation. […] In essence, irrespective of the channel through which they are offered, both gambling activities refer to the same games (for instance, roulette, baccarat, punto banco, black jack, poker, gaming machines etc.), showing similar features that are inherent to the gambling activity. Moreover, the reality shows that, in many occasions, land-based operators also provide online products within their premises.”

The Commission is right that online and land-based gambling activities are interchangeable and that in the eyes of punters they constitute the same product. But it is important to note that, despite the correctness of this conclusion, the Commission has not shown that these gambling activities are similar given the objectives of the tax system. As already noted, it has reversed the sequence of analysis. That is why it states that “(57) since it has been concluded that land-based and online gambling are in a comparable legal and factual situation, it is necessary to assess the presence of selectivity by comparing the tax treatment of online gambling and land-based gambling activities.” “(58) The determination of the reference framework has a particular importance in the case of tax measures, since the very existence of an advantage may be established only when compared with the ‘normal taxation system’. The normal tax rate is the rate in force in the geographic area constituting the reference framework.”

The complainants argued that the normal regime that was applicable to gambling taxation was the tax regime applicable to all gaming activities in Spain, irrespective of its adoption by the central or the regional authorities. The Spanish authorities counter-argued that it was not possible to establish a reference tax system. If the gambling activity was local or regional, then the reference taxation framework would be the one of the relevant Autonomous Community. Conversely, if the gambling activity took place at national level, the reference framework would be the one of the central government.

In this connection, the Commission recalled that “(62) the reference framework does not necessarily need to be defined within the limits of the Member State, so that a measure conferring an advantage in only one part of the territory is not automatically selective for the purposes of Article 107(1) TFEU. Thus, it is possible that an infra-State body enjoys a legal and factual status which makes it sufficiently autonomous in relation to the central government of a Member State, with the result that, by the measure it adopts, it is that body and not the central government which plays a fundamental role in the definition of the political and economic environment. Therefore, the legal framework appropriate to determine the selectivity of a tax measure may be limited to the geographical area concerned.”

After examining the distribution of taxation powers between different levels of government in Spain, the Commission concluded that “(64) … The appropriate reference framework in the present case is therefore the taxation of gambling activities in each Autonomous Community.”

It then observed that “(65) […] in a given region, gambling activities that are subject to tax rates determined at regional level can co-exist with the same activities that are subject to the Gaming Act, because they are provided at national level.” “(66) Moreover, for those activities covered by the Gaming Act, […] that Act authorizes the Autonomous Communities to raise the applicable tax rate (up to 20% on top of the existing rates) for those games that take place within their territory. In this case, the Autonomous Communities have the power to legislate on the final taxation rate of gambling activities that take place within their territory.”

“(67) It follows from the intrinsic nature of the gambling activity that whereas online gambling would likely take place at a national level, land-based gambling – which requires the existence of premises – is likely to fall within the regulations of the competent infra-state body, in this case, the Autonomous Communities.”

“(68) On the basis of the foregoing, the taxation system for gambling activities, resulting from the interaction of the Gaming Act and regional laws, at the level of the Autonomous Communities in Spain introduces a differential tax treatment for operators of gambling activities provided at national level (online activities and other activities of national scope) and the operators of the same activities provided at regional level (typically land-based), which are legally and factually in a comparable situation. It follows of such an analysis that it cannot be excluded that the measures under review would be prima facie selective within the meaning of Article 107 TFEU.”

This reasoning confuses more than it elucidates. The Commission mixes two sets of tax law, national and regional, to conclude that in combination they treat operators differently. The Commission has already stated earlier that at national level there was no differentiation. It has not shown or claimed that Autonomous Communities differentiate between operators. This means that all operators in a given Autonomous Community are treated equally. So, each tax law makes not discrimination. It is unprecedented that the Commission mixes different measures, adopted by different authorities with different geographic jurisdiction.

Perhaps, the Commission has in mind, again, that the problem is caused by the fact that a single measure – the Gaming Act – does not apply to regional gambling activities. But it does refer to “regional laws” in plural, without explicitly referring to the limited application of the Gaming Act or to any exceptions it may grant to regional activities.

The Commission then proceeded to examine whether the differentiation it discovered from the possible combination of national and regional measures could be justified by the logic of the system. As will be seen below, there are also problems in relation to the Commission’s analysis of the justification of the differentiation.

“(70) In the present case, […] given the supranational character of online gambling, it was deemed necessary to adopt a Law whose scope would encompass the whole national territory.” “(71) It is undisputed that online gambling is of national and supranational character and that the provision of online gambling cannot be confined to a specific geographic area. It follows from the intrinsic nature of gambling activities that land-based gambling would be subject to the regulatory framework of the Autonomous Community where the gambling activity is organised; and conversely, online gambling, given its national and international character, would effectively be subject, in the absence of harmonisation, to the State’s regulatory framework. Moreover, such a logic is further reinforced by the fact

that the decision on the location of the fiscal seat of an online gambling company may be different from the place where the gambling services are effectively provided. Regional taxation of activities provided by online operators could therefore be a decisive element for the ultimate fiscal location of these companies. In light of this, it would be therefore contrary to the logic of the tax system to exclusively limit the competences on taxation of online gambling activities to the territorial scope of the Autonomous Communities.” “(72) Based on the foregoing the Commission concludes that the nation-wide tax rates for gambling activities of national scope are justified by the logic of the tax system of gambling activities.”

How the Commission could detect that the reference system had such objectives it is not at all clear. It should be remembered that for differentiation to be justified by the logic of the system it must be the outcome of objectives which are “intrinsic” to that system. For example, if the purpose of taxation is to penalise polluting activities, then the exclusion of non-polluting activities is justified by an objective which is internal to the system. In this case, the Gaming Act applied to gambling at national level not regional. If the express intention of the Act was to protect people from gambling, it is difficult to understand why it did not apply to regional gambling activities. The Commission’s analysis concerns the effectiveness of taxation rather than its intrinsic objectives. A much clearer explanation would have been that the Act applied to those activities that fell within the taxing jurisdiction of the central government as defined by the Spanish constitution.

In the end the Commission concluded that the Gaming Act was not a selective measure and therefore it was not State aid.

This is probably the right conclusion. The problem is that the Commission seems to arrive at that finding through meandering reasoning.


[1] The full text of the decision can be accessed at:




Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He presently holds positions at the College of Europe and the University of Maastricht. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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