A couple of weeks ago, I had the pleasure of being interviewed by David Lappin and Dara O’Kearney in their poker podcast “The chip race” to talk about taxation in poker. I´ve tried to transcribe everything we talked about, because some things are cut in the interview. I hope you like it. If you have any doubts, do not hesitate to ask. Here you can find the podcast if you want to listen to it.
I will try to explain briefly how the Spanish legislation on the game has evolved.
After the death of Franco and the arrival of democracy in Spain, a necessary law of gambling was established in 1977.
It established the types of games that were allowed to develop and a a tax rate applicable to the companies that offered these games.
In its origin, the only tax rules that existed, were focused on 3 points:
1.- Gambling losses were not considered deductible losses.
2.- The profits of the game were taxed by the concept of capital gains.
3.- The gambling houses had no obligation to make witholding tax on the prizes that they gave to the players.
The only reform in this matter, introduced by the 2012 gambling law, has been to allow players to deduct from their earnings the losses they had in the game in the same fiscal year (with the limit of the profits obtained in the same period).
(For example, If you win in december in Prague 100k and you loose during next year the 100k, you are fucked, you still have to pay for that 100k)
Why was this reform introduced? Because the arrival of the online betting and gambling to Spain, and with the intention of collecting the players net earnings, what they had really won. This is possible in the online world because control mechanisms are possible. But that law also affected the live players and the earnings and losses of the live games, and in those live games, especially the losses, CANNOT BE CONTROLLED.
Then the Spanish tax agency realized that there were people who had actually made money playing poker before 2012, and since they have the power to review the last 4 years of your income tax declaration, they started investigating players who had made money back in 2008 with no legal possibility of deducting losses.
The way to do it was quite curious. The tax agency tracked players in The Hendon Mob, then, they sent them letters and if the player was unwary and when they asked “Did you win a tournament in 2009 of € 5000? And he player answered “yes” (most of the times you do not remember the net profit of a tournament). They already had him caugth. With no deduction posibilities of the losses.
And its funny, because Hendon mob, on his page, has the following wording:
“Accuracy of information cannot be guaranteed. Winnings shown may not reflect any deals made between players during the event, even those endorsed by the tournament organisers, nor do we record the effect of any shares, backing or other deals made before the event. Such arrangements between players and other parties may substantially alter the sum actually made by the players. Information about total expenditure on tournament entry fees is not normally made available and is not recorded on our database. For these reasons the figures shown for player income …. cannot even be relied upon as a true reflection of gross winnings and are in any case not net of losses. Government agencies should note that use of this database for the purposes of collecting information to be used for calculating taxes would not yield accurate results.”
They didn´t care about this.
At least until me and other players aware them that what they were doing was ilegal.
So what they did then is keep looking in Hendon Mob and not telling it to the players. They looked for the info in The Hendon Mob and then, they called the casinos and asked them if they have paid the amount reflected in the web page.
Most casinos did not keep files that reflected the earnings of poker players, only Barcelona and some others. The funny thing is that the casinos themselves, when they were required by the tax agency, were scared because they didn´t have this information, and to prevent the administration from giving them a fine, they consulted The Hendon Mob to know what the players had won and tell it to the tax agency, and the amount they told to the Spanish authorities was what was shown on The Hendon Mob page, and as you know it never reflects neither pacts or swaps, so it was an incorrect amount.
There are many players ruined because that. These players are faced with the problem that they can not deduct their losses, as is the case, for example, of the famous chess player Francisco Vallejo Pons, who has been demanded during 2016 that he has to pay taxes for profits valued at 600 thousand euros. He had entered into pokerstars 5000 euros and had not withdrawn anything, but the tax agency considered every poker hand he won, as a profit and those he lost, he could not deduct them. Absurd.
Now in online poker everything is controlled and very clear. Earnings minus losses and you get a number and you pay for it. Actually is better than before!
Another interesting fact is that you will not pay the same for what you earn, it will vary if your income is 10 thousand a year or if you income is 60 thousand, since the money you earn playing, is added as an extra income to your annual income of what you earn in your usual job.
At present, the profits that can be obtained by the players for these activities are taxed in your own income tax through the concept of capital gains,
And what about live poker?
The law allows you to deduct your losses, but casinos are not required to give lost certificates in roulette, blackjack or poker, and if there is no certificate, the deduction can not be applied. The tax agency do not allow to make deductions without a certificate. I understand that is difficult to control all the money that is earned/spent in a casino, but that´s not my problem.
The reality is that the old Spanish tax legislation in this matter was contrary to the tax principles of our legal system (principle of economic capacity), since the player was not taxed for the profit actually obtained. And after the 2012 reform, it was contrary to the constitutional principles, for infringing the principle of effective judicial protection, since the player could not obtain proof of the deductible losses, that if it could be deduced, since the gambling houses did not provide them.
I have a posible a solution to the problem, to tax correctly the earnings and losses in bets and gambling.
Player cards are made upon entering the casino. The money that is going to be played is transferred into these cards. When you arrive at the black jack, or poker or roulette table, you take the money out of that card, and when you leave, you enter it back (if you have won). Everything perfectly controlled. But of course, the casinos are opposed radically to this solution because players play a lot of black money that would not be bet if this was the case.
Another way to fix all this will be to allow the creation of poker rooms with an special unique legistation outsite of the gambling catalog.
How many players do you know who have won a tournament and spent all the money on roulette, or not at roulette, playing cash? Many. Very many. The reality is that the only money you can deduct is the tickets for the poker tournaments, and that´s not fair at all.
Since those first tax requirements most of the Spanish casinos keep records of the tournaments results, of the payments they do and of the wire transfer that are made to the players so they can send them to the Spanish authorites if they required them.
In addition, transfers are made directly on an account or with bank checks when paying for the big prizes, not on cash anymore.
As I said before, the form of taxation is for the difference between the gains and losses obtained by the player in an annual period, being taxed as capital gains at the general rate that corresponds to the taxpayer according to the rest of his activities. In no case is the deduction of expenses allowed.
Together with another lawyer partner, we have submitted to the tax agency a binding query to authorize the possibility of paying taxes as a professional poker player and thus be able to deduct at least the travel, hotel, and food expenses.
And this is the situation for Spanish players.
Now, what about the foreign players who play big tournaments in Spain?
First, it must be made clear that each case is different.
Depending on which country each player resides in, it is necessary to review the double taxation treaty that country has signed with Spain. In almost everyone says the same.
The case that has become famous these days is the one of the German player Hossein Ensan.
First of all, this is the AGREEMENT BETWEEN THE KINGDOM OF SPAIN AND THE FEDERAL REPUBLIC OF GERMANY TO AVOID DOUBLE TAXATION AND PREVENT FISCAL EVASION IN THE FIELD OF TAXES ON INCOME AND ON HERITAGE
1. Items of income of a resident of a Contracting State, wherever arising, not dealtwith in the foregoing Articles of this Agreement shall be taxable only in that State.”
This article is almost identical in most of Spain’s agreements with other countries.
This agreement does not speak at any time of the winnings obtained by gambling and/or betting, so in this case, the player will pay in Germany.
What is the letter that Hossein Ensan has received from the Spanish tax agency?
There is another tax law in Spain, called Non-Resident Tax.
In its article 13 says:
1. The following are considered income obtained in Spanish territory:
(This article cites many and one of the is:)
i) Capital gains:
4)When they are incorporated into the patrimony of the taxpayer in the Spanish territory or in the rights that are fulfilled or exercised in said territory, even if it has not been derived from a prior transfer, such as the profits in the game.
This tax is the one that Spain is claiming to Ensan. I personally am ashamed that the tax agency works in this way. We, the players, do not have to pay for the incompetence of the administration that should solve this problem as soon as possible.
If Hossein Ensan has TAXED in his country what his german legislation requires, should not have any problem because international treaties to avoid double taxation are over the tax of non-residents, according to the constitutional principle of normative hierarchy.
Meanwhile, we hope the legislator fixes this fudge of taxing twice for the same concept. What is certain, is that Spain has found “the goose that lays the golden eggs” with the poker players and will try to get as much money as possible.
Spanish professional players have had to emigrate to the United Kingdom because there, the players do not pay for the profits of the game, because the betting houses do, which are the ones that always win, so they can avoid an incorrect and excessive Spanish gambling taxation. (What is 100% true is that all the Spanish players I know who live outside Spain, will love to come back to Spain if it could be possible to play online world wide and with a fair taxation)
I suppose you already know a document that I love (this is the reason why UK poker players do not pay taxes for their poker earnings) that can be found on the HMRC website where it exempts betting and gambling from being considered “business”.
“The fact that a taxpayer has a system by which they place their bets, or that they are sufficiently successful to earn a living by gambling does not make their activities a trade.
The case of Graham v Green  9TC309 concerned a man whose sole means of livelihood came from betting on horses at starting prices. Rowlatt J says at pages 313 and 314:
‘Now we come to betting, pure and simple… the man who bets with the bookmaker, and that is this case. These are mere bets. Each time he puts on his money, at whatever may be the starting price. I do not think he could be said to organise his effort in the same way as a bookmaker organises his. I do not think the subject matter from his point of view is susceptible of it. In effect all he is doing is just what a man does who is a skilful player at cards, who plays every day. He plays today and he plays tomorrow and he plays the next day and he is skilful on each of the three days, more skilful on the whole than the people with whom he plays, and he wins. But I do not think that you can find, in his case, any conception arising in which his individual operations can be said to be merged in the way that particular operations are merged in the conception of a trade. I think all you can say of that man … is that he is addicted to betting. It is extremely difficult to express, but it seems to me that people would say he is addicted to betting, and could not say that his vocation is betting. The subject is involved in great difficulty of language, which I think represents great difficulty of thought. There is no tax on a habit. I do not think ”habitual” or even “systematic” fully describes what is essential in the phrase “trade, adventure, profession or vocation”.’
This shows that having expertise or being systematic (‘studying form’) is not enough to create a trade of being a ‘professional gambler’.”
So now we have a problem. A big problem. The Spanish goverment has not ever been concerned about gambling and much less by the players, and now that they have realized that they can make money with us, it will rain tax inspections for the profits obtained, especially in online sports betting (remember that most of them, spend the earned money betting on casinos or where ever, and cannot deduct the losses!)
For me, What would be the solution, before the government begins to seize the current accounts and the assets of the players (They have already done it in some cases)?
Or we all become British, or another option is to retain in poker tournaments a small percentage, 1% for example, that the casino or the poker room would pay to the Spanish coffers and in that way, they will raise much more than what they raises today trying to get the money from the ruined players.
I know this is a utopia, especially because the legislator sees us as sick ludopaths and it is practically impossible for any politician to sit down to talk to us. While I wait for the miracle, I will continue with the fight that allows us to pay taxes as professional poker players, and if that happens, at least, we can deduce the losses.
* After this interview, and due to the European laws on data protection, it is already possible to erase our data from hendon mob (something that was previously impossible). You just have to send an email to firstname.lastname@example.org explaining that you do not want to appear on their website. They may ask you for a copy of an ID.
With all this I have explained I do not mean that you do not have to pay taxes, I only mean that you have to pay for what you really earn, not for what a website says or what a tax man wants you to pay.