Tax regulation of poker

Date 21 sep. 2009
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In recent years, the interest for poker has risen. As a consequence of this, poker players have been uncertain about the taxation of their winnings. Due to this, SKAT (the Danish tax administration) has composed a guide to eliminate some of the frequent questions.

 

Taxation of poker income

The main rule is that a poker player is liable to pay tax, cf. The Central Government Tax Act. The winnings are taxed as a personal income. Social security contributions are not added to the tax.

 

Taxation of winnings follows the legal acquisition principle and is taxed in the year when it is won (i.e. acquired). Therefore it is without relevance, when the winnings are withdrawn or when they are brought to Denmark.

 

It is not only winnings from poker that are tax liable. A poker player will also be tax liable of other poker related income such as teaching of poker, writing about poker, sponsor income and so-called affiliate income from poker sites.

 

Tax free winnings

If the winnings are won in a Danish casino, the poker player is not tax liable. Instead the casino pays indirect tax.

 

Furthermore, the poker winnings can be tax-exempt, if they are won within the EU and the game provider is domiciled in an EU country. It is furthermore a condition that the game is approved and controlled in the EU country in question in accordance with the national gambling law (poker license). As a main rule, it will appear on the poker site whether the game provider has a poker license. Before playing poker on a poker site, one should therefore examine whether the game provider is domiciled within an EU country, as this will be decisive for the tax liability of the poker winnings.

 

The poker site must have its own licence. It is not sufficient that the game provider is part of a network that has a license.

 

It is possible to request SKAT for a binding answer concerning tax exemption regarding winnings won online on poker sites. Poker players as well as game providers can request a binding answer concerning tax exemption regarding winnings from a poker site. Several game providers have already used this opportunity on behalf of their poker players. On its website, SKAT has publicised a list of tax exempt sites, but there are probably more sites that meet the conditions for tax exemption.

 

Tax deductable expenses for poker players

In Denmark, it is not allowed to be self-employed as a poker player. This is due to the fact that poker is regarded as a game of chance, where the outcome is based on chance.

 

As a consequence of this, income from poker is classified as non-commercial income which has the consequence that winnings from poker are accounted for in accordance with a net principle for each income year.

 

In practise, this has the consequence that it is not possible for a poker player to deduct losses from personal income. Poker winnings from casinos or sites domiciled outside the EU are accounted for in accordance with the net principle. Therefore, it is only the net winnings that are to be accounted for in personal income. Examples of expenses that can be deducted from tax-exempt winnings may be buy-ins for tournaments, transportation expenses, board and lodging during tournaments, share of expenses for internet connection/equipment and transaction fees for payment facilitators that transfer money from poker players to the casino.

 

Rakeback (repayment of rake)

In most cases, rake is paid to the game provider in order to participate in the game. Rake is a form of “fee” that the player pays to the game provider in order to play. Rake is calculated as a percentage of each pot (the pool of money the players bet) being played.

 

If the player is liable to pay tax of the winnings from a poker site, the poker player can deduct expenses for rake. On contrary, if the winnings are tax-exempt, the rake is not deductable.

 

As a form of costumer care or marketing plan, some game providers choose to pay back the rake. SKAT considers this as a discount arrangement which has the consequence that the expense for participation shall be reduced, which also means that the deduction shall be reduced.

 

Documentation to SKAT

As described above, it is not allowed in Denmark to be self-employed as a poker player. This has the consequence that poker players are not covered by the Bookkeeping Act, and SKAT cannot demand that financial statements are prepared.

 

Provided that poker players wish to deduct expenses defrayed whilst acquiring a tax-liable poker income, the expense must be documented. If documentation is not provided, the poker player risks being denied a deduction.

 

We therefore recommend that a financial statement consisting of three parts, divided into tournaments, cash-games and online (divided into sites) should be prepared. Sufficient documentation shall be enclosed in case SKAT should require such documentation.

 

 

If you have any questions or require additional information on the above, please contact attorney Dan Moalem (dmo@mwblaw.dk) or attorney Henning Hedegaard Thomsen (hht@mwblaw.dk).

 

The above does not constitute legal counselling, and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.