In Italy, winnings from casinos situated in Italy were exempt from income taxation to the extent that their taxation was included in an entertainment tax. However, winnings from casinos situated outside of Italy were subject to income tax. As a result, only winnings obtained in casinos situated abroad were included in the basis for assessment of income tax for persons residing in Italy.
Two Italian nationals were accused by Italian tax authorities of failing to declare winnings obtained in casinos located abroad. The individuals claimed that the tax assessments discriminated against casinos located abroad as such winnings would have been tax exempt had they occurred in Italy. Italy claimed that the differing treatment was justified by the need to prevent money laundering abroad and limit the arrival in Italy of capital whose origin was uncertain.
The provincial tax court in Rome requested that the European Court of Justice address the consistency of Italy's dual tax treatment of casino winnings with the principle of non-discrimination with respect to service providers and whether such treatment could be justified by reasons of public policy, security or health.
1. What was the decision of the ECJ with respect to the consistency of Italy's dual tax treatment for casino winnings with the principle of non-discrimination with respect to service providers?
2. What was the ECJ's decision with respect to Italy's justifications for the differing treatment of casino winnings?
3. Attitudes differ among the EU's member states with respect to social issues such as gambling. Nevertheless, the ECJ deprived Italy of a means by which to regulate gambling within its borders by striking down its tax treatment of proceeds. Is this an example of the EU improperly interfering with an area of economic activity that should be left to national governments? Why or why not?