THE DETERMINATION OF INCOME OBTAINED FROM PRIZES AND GAMBLING 5q5y3f

by Dumitru Loredana-Marlen, Lawyer at “Luca Mihai Catalin Law Office’’ 4e3s4a

One of the reasons why gambling has successfully ed the test of time, managing to enjoy popularity at least since antiquity and to this day, is represented by the idea of obtaining by the participant, due to chance, of a win. 473g2g

When the hand of fate is favorable to the participant in gambling, a new economic value appears in his patrimony as income/winning from prizes/games.

In the following paragraphs, we will see that in this equation not only the participant in gambling has to win and we will observe that whenever the luck smiles to any participant, the gain thus obtained does not escape the provisions of the tax legislation, through which are established rules for determining the “share” of the state in the “luck” of the new winner.

Thus, in the content of this article, we will analyze the tax provisions in force that are governing the income obtained as a result of participating in gambling, as well as other aspects that are likely to clearly separate gambling income from other categories of income (such as prizes) that are at risk of being erroneously assessed as arising from participation in gambling, together with the taxation system for each of these categories.

The incomes that are the object of the analysis of the present article (namely those from prizes and those from gambling) are regulated in a general way within the provisions of art. 108-110 of the Fiscal Code, and for simplicity we will treat them separately in the following.

1. INCOME OBTAINED FROM PRIZES

According to art. 108 para. (1) of the Fiscal Code ‘’the income from prizes (consisting of either money or goods) includes the income from competitions, the amounts received as a result of participation in the Lottery of tax receipts, as well as from the promotion of products/services as a result of commercial practices.’’

Also, according to the provisions of art. 110 para. (4) “The prizes (obtained in cash and /or in kind) ARE NOT TAXABLE below the value of the non-taxable amount established in the amount of 600 lei, inclusive, made by the taxpayer for each prize.’’

In practice, the question has been asked whether the income obtained as a result of participating in promotional campaigns organized by gambling operators represents income from prizes or income from gambling.

This question is justified considering the provisions of art. 32 of the Methodological Norms for the implementation of art. 108 para. (1) of the Fiscal Code which stipulates as follows:

(1) For applying the provisions of art. 108 para. (1) of the Fiscal Code – which regulates the income from prizes – this category includes income in cash and/or in kind, such as:

…

1. c) TAXABLE INCOME OBTAINED FROM GAMBLING.

(2) For the purpose of differentiating the income obtained from prizes from income obtained from gambling, are considered gambling gains those granted to participants in the game by any legal person authorized to operate gambling, according to the relevant legislation.

Although the law text expression is defective, from our point of view the provisions for the implementation of art. 108 para. (1) of the Fiscal Code did not have as finality the inclusion of the income obtained from gambling in the sphere of the income obtained from prizes, and on the contrary, their delimitation – as it results from the corroborated interpretation of paragraphs (1) and (2) of art. 32 of the Methodological Norms.

This is justified by the fact that if this had been the intention of the legislator, he would not have understood to regulate these two categories of income separately. Moreover, as we will see later in this article, the tax rates for these two categories of income are different, which clearly shows that gambling income is distinct from prize income, benefiting from its own regulatory regime.

On the other hand, neither the interpretation that could be deduced from the content of para. (2) in art. 32 of the Methodological Norms according to which all winnings obtained from a gambling organizer represent income from gambling cannot be received, whereas not all the income that a certain person can obtain from a gambling operator is due to participation in gambling.

Therefore, we appreciate that the intention of the legislator was precisely in the sense of delimiting these two categories of income and not in the sense of merging them.

Therefore, going back to the issue of earnings from promotional campaigns, from our point of view, they cannot be considered gambling income for at least two reasons:

• The last sentence of art. 108 of the Fiscal Code stipulates that the revenues from prizes include the amounts/revenues received from the promotion of products/services as a result of commercial practices – or promotional campaigns, even organized by a gambling operator, aim to promote services which the operator offers;
• In order to be considered gambling income, they must be obtained as a result of actual participation in gambling as defined by the relevant regulations in force and not as a result of participation in campaigns to promote goods and services – even if they promote gambling.

Furthermore, regarding the method of determining the tax related to the income from prizes, art. 110 para. (1) stipulates the following:

’’Income in the form of prizes is imposed by withholding tax, with a share of 10% applied to the net income earned from each prize.’’

The net income is defined in art. 109 of the Fiscal Code and represents the difference between the income from prizes and the non-taxable amount of 600 lei.

1. INCOME OBTAINED FROM GAMBLING

According to para. (3) of 108 of the Fiscal Code ”Gambling income includes all amounts collected, goods and services received as a result of participation in gambling, regardless of the name of the income or the form in which it is granted, including those of the type of jack-pot.’’

In accordance with par. (2) in art. 110 of the Fiscal Code The income obtained from gambling is imposed by withholding tax. The tax due is determined on each payment, by applying the following tax scale on each gross income received by a participant, from an organizer or payer of gambling income:

According to para. (4) let. b) in art. 110 of the Fiscal Code “The income obtained in cash and /or in kind as a result of participating in gambling such as casinos, poker clubs, slot machines and lotteries IS NOT TAXABLE below the non-taxable amount of 66,750 Lei, inclusive, made by the participant in gambling for each gross income received.’’

• The tax due in case of obtaining an income as a result of participating in gambling such as casinos, poker clubs, slot machines and lotteries, with a value higher than the non-taxable ceiling of 66,750 Lei, is determined by applying the scale provided above on each gross income received by a participant, and the amount of 667.5 Lei is deducted from the result obtained ( 110 paragraph (2²)).
• The verification of the inclusion in the non-taxable ceiling is performed at each payment, regardless of the type of game from which the respective income was obtained (paragraph (4) letter b) of art. 110).
• If the gross income received for each payment exceeds the non-taxable ceiling of 66,750 Lei, inclusive, the taxation is made separately from the income obtained from participating in other types of games of chance (paragraph (4) letter b) of art. 110).

For the incomes realized by the natural persons as a result of the participation in remote or online gambling, defined according to the Government Emergency Ordinance no. 77/2009 on the organization and operation of gambling, approved with modifications and completions by Law no. 246/2010, with subsequent amendments and completions, the tax due is determined and withheld at source at each transfer from the on the gaming platform to the bank or similar (art. 110 para. (2¹)).

Regarding the obligation to calculate, withhold and pay the tax on income obtained from prizes and gambling, it is the responsibility of the gambling organizer, and the amounts of money related to the tax are transferred to the state budget until the 25th of the month following the month of in which he was detained.

In conclusion, whether we like it or not, when it comes to taxes and duties no one is exempt, and this is true even for the income obtained as a result of participating in gambling.