Online Payments – the EU approach – World Online Gambling Law Report Summer Retreat, June 2003

1. Online Payments – the EU approach – World Online Gambling Law ReportSummer Retreat, June 2003 ULYS Thibault Verbiest www.ulys.net thibault.verbiest@ulys.net

2. VAT and e-commerce Current regime 1 July 2003 : Specific regime Online Payments: Single Payment Area (SPA) EU regulatroy framework for E-money Money Laundering Introduction - Overview

3. Directive 77/388/EC: Electronic delivery = supply of services (B2C) Service is rendered where the supplier is established EU based services: charge VAT (local?), even if delivered to non-EU consumers non-EU based service: no VAT Competitive disadvantage VAT and e-commerce:

4. Directive 2002/38/EC of 7 May 2002 Gaming services are explicitly included (annex L) Applicable from 1 July 2003 on Two major changes for the supply of gaming services To non-based EU consumers: NO VAT To EU based consumers: VAT EU based gaming provider: intra-community delivery Non-EU based gaming provider: Specific scheme VAT and e-commerce: new regime

5. Non-EU suppliers registers in one Member State ( = MS of identification): statement + information Supplier subject to VAT regime in MS of ID Charge VAT according to the regime of the jurisdiction where the consumer is established (= MS of consumption) File quarterly electronic VAT returns (€ or national currency for UK, DK, SW) VAT authority of the MS of ID will reallocate VAT to VAT authorities to MS of consumption VAT – e-commerce: Special Scheme

6. Heavy administrative burden: Online identification of consumers; reliable geolocation tools? (cf. Yahoo – Ladbrokes) Personal data protection: Directive 2002/58/EC: traffic and location data Directive 95/46/EC: transfer to Third Countries Apply and manage 15 VAT regimes Keep records for a period of 10 years subject to control of 15 VAT auhorities - enforcement money laundering Forum shopping: Sweden vs. Luxemburg option Unilateral EU initiatieve: OECD - US VAT – e-commerce: Comments

7. European citizens should be allowed to take full advantage of: Single market: cost related to cross-border payments are a trade barrier Single european currency:euro zone – UK, DK, SW no difference between domestic of cross-border financial transaction 3G communications (UMTS) Online gaming services are highly mobile Payment for this service should also be highly mobile Online Payments: Single Payment Area

8. Regulatory Framework: Directive 97/5/EC on cross-border credit transfers Regulation 2560/2001 on cross-border payments in € COM(2003) 259 final on financial services and electonic commerce (Internal Market clause of Directive 2000/31/EC) Requirements: cheap, fast and secure payments Implementation of electronic messages (SWIFT) Use of International Bank Account Numbers (IBAN) Developement of new payment services: e-money Online Payments: Single Payment Area

9. Regulatory Framework: Directive 2000/46/EC on electronic money Directive 2000/28/EC amending the Banking Consolidation Directive Objectives: Protect consumers and increase confidence Framework to ensure financial integrity and stability of e-money institutions (ELMI) Exchangeability against cash Improve single market for financial services: SPA Harmonised legal and technical framework will increase interoperability between different products Foster the development of e-commerce (m-commerce) Online Payments: E-money

10. E-Money: is a monetary value which is Stored on an electronic device Issued on receipt of funds of an amount not less in value than the monetary value issued Accepted as a means of payment by undertakings other than the issuer Examples: E-Purse, Proton, Mondeo, etc. Online Payments: E-money

11. European Court of Justice: Schindler « Money laundering is a justified reason to override the freedom to provide gaming services in Europe » Ground still justified in an online environment? US: GAO report on Internet gambling (Dec. 2002) UK: DCMS Position Paper on remote gambling EU: Directive 2001/97/EC on money laundering Covers operators, owners and managers of casino All criminal activity, not just drugs trafficking Member states must adopt adequate measures Institutions must identify customers, keep records and cooperate with authorities Money laundering

12. Link between money laundering operations and duly established EU operators seems to be exaggerated(cf. UK APACS initiative) Online gaming industry differs from land-based operation No cash, but electronic transactions that are recorded and traceable Intervention of a financial institution subject to anti-money laundering measures Often limits on the number of accounts and the amount of witdrawals In some jurisdictions specific anti-money laundering measures for online games are inscribed in the law/license Money laundering

13. There will always be a risk, but is this greater than with other financial transactions? Underscores the need to adopt an adequate regulatory framework for the provision of online gaming services, covering all aspects of online gaming (UK, EU?) Interest of all parties involved: Operators: have legal security to offer their service in a transparent manner and do not longer have to go « undercover » Member states: Can impose taxes: reallocation to good causes Adopt measures to counter organised crime (money laundering) and protect consumers Consumershave the guarantee that their rights and interests are safeguarded Need for an adequate regulation 13