Danish Decision Marks Shift In EU Gambling Regulation
Many European online gambling operators, regulators and policy makers breathed a sigh of relief 20 September 2011 when the European Commission (EC) approved the Danish gambling legislation and allowed a differentiation in taxation between land based and online casinos. A different decision would have caused havoc with the gambling regulatory frameworks of various European jurisdictions.

The Danish gambling legislation was passed by its parliament in June 2010, but it was suspended because Danish land based casinos and slot machine operators submitted a formal complaint to the EC. They argued that the lower tax rates imposed on online casino operators compared to land based operators constituted state aid, and so was against EU law. If the EC had sided with the casino operators, the decision would have caused complications with existing and upcoming gambling legislation in countries such as Italy, Spain, Greece, the Netherlands and Germany. For many policy makers it would be unthinkable to reduce the tax rate of land based casinos or gaming halls to the level at which most online gambling is taxed, and it would be unfeasible to tax online gambling at the rate at which land based operators are currently taxed.
But the basis on which the EC made its decision opens a new page on European gambling policy decision making. 

The EC took a novel and pragmatic approach in coming to its decision. It did not deny that the lower tax rates imposed on the online casino was in effect a form of state aid. This effectively means it did not accept the argument put forward by the Danish government that land based and online casinos were two different industries.
The EC showed its pragmatism by deciding that positive effects of gambling liberalisation outweighed potential distortions of competition. In short, the EC thinks that an imperfect market is better than having no market at all. This is a significant precedent.
The novelty in EC’ approach derives from the Commission’ readiness to take into account the availability to Danish residents of “illegal” gambling from operators licensed in offshore jurisdictions with little or no gambling tax. 
The EC recognized that setting a high taxation level would simply make the legislation ineffective against offshore operators and the desire of the legislator to bring offshore activity within the remit of law outweighed potential distortions of the market. The EC has practically stated that for regulations to be effective tax rates must reflect the reality of the market place.
This is an important shift. The guiding principle of European gambling policymaking has so far been to protect citizens from the risk of gambling addiction, which has principally advantaged state lottery monopolies. In fact, European Lotteries, the association composed of State Lottery and Toto companies, was quick to deplore the rationale behind the decision.
Germany, the Netherlands and Sweden are currently in the process of drawing up new gambling legislation. It will be interesting to see what lessons they will have drawn from this latest EC decision.