Dan Schwartz: „In order to have better legislation we must have more educated legislators”

Friday, 6 March 2020

„It is often said that thefts occur in the gambling industry, but my question is how can someone steal from the gaming industry when ONJN has a proxy server where everything in the company is monitored in real time?”

Dan Schwartz

Required reading! We invite you to read this interview exclusively offered for our magazine by the prestigious tax expert, Managing partner RSM Romania, Dan Schwartz. We invite you to learn extremely useful things about gambling taxation, the industry opportunity to implement the AML (Against Money Laundry) law, about how to improve the cooperative relationship between regulatory and control authorities and economic agents in our field, about the latest decisions of the Romanian Justice regarding the fiscal controls of the period 2015-2016 and their impact, and not least about the legislation and those who do it. An event interview that deserves to be read to the end, a lesson in common sense, logic and professionalism from one of the most enlightened minds of our economy.


Implementation of the AML Law, an opportunity for the gambling industry

What do you think are the threats that gambling operators are exposed to when implementing the new AML law?

From my point of view I don’t think that there are threats, the law on money laundering is mandatory, it is part of European and national law and it is necessary and obligatory to be respected. The new legislation does nothing but protect operators from two things: to be exploited by malicious people, and in this respect introduces specific and restrictive provisions on avoiding money laundering, and to create a less favorable image. It is known that the industry is viewed by many with suspicion, let’s say, there is still the prejudice that in the locations where the industry operates, events occur if not illegal, then at the limit of legality, therefore I think the industry should take advantage of the new legislation and highlight that it is a very regulated industry by a very strict special legislation from all points of view, both at EU level and in Romania. So I can say that money laundering legislation can, in my opinion, have a positive impact.

At the same time, from the point of view of compliance and reporting, it will certainly bring additional costs to the operators, which will have to be absorbed and which for some of the participants in the economic game may represent obstacles in the development process. For those who are already organized and have developed a very precise internal control system, for those who are audited in accordance with the requirements of the law and the ONJN, for those who have a certain size of turnover, number of employees, etc., for these companies the financial burden of the new regulations will be easier to bear. But for the others, who do not already have protocols already implemented and have a relatively lower economic power, it will represent a significant financial effort, obligatory to be supported regardless of costs. This new legislation is very strict and its non-compliance will be extremely dangerous, the implications coming from the area of civil law and entering the area of criminal law, which involves risks that I do not think a serious gambler, regardless of their economic strength, wants to take.

The bottom line is that there will be some costs that will have to be borne!

From the information I have, ONJN has already prepared a set of proposals to comply with the new regulations, which are already commu­nica­ted and implemented by most of the companies in the industry.

So there is a positive and a less positive side, I would not call it negative, there are efforts that need to be made. The main interest is the gambling companies that must constantly maintain a positive image on the market. Only in this way can the industry develop and protect itself against attacks that sometimes become virulent. If you read the news, people are still talking about the impropriety in this industry. From my point of view, gambling is a perfectly legal activity, but it is specifically regulated and supervised, therefore, it must, on the one hand, be treated in the same way as any other industry, and on the other, it must be understood that reasonable regulation and supervision are necessary, especially in the context where there is the danger that, when the industry is either completely deregulated or over-regulated, the risk that some of the activity will migrate to the gray, if not black, area of the business, will manifest. We must not forget where we started and where we are now! Therefore, it is preferable that such an industry of „sin”, as it is called, be known, recognized, controlled and reasonably regulated and not ignored or over-regulated until blocking legal provisions that have no logic.

In short, the fiscal problems that the industry has are the same problems that Romania has

What are the tax problems faced by gambling operators right now?

When it comes to fiscal issues in general, gambling operators face the same problems as other Romanian taxpayers: often legislative changes, ambiguity and clarity of the legal texts, aggressive fiscal inspections, etc. Specifically, although at present fiscal problems are not numerous, for casinos the old problem of defining the income remained unclear, although in this regard we already have some final decisions of the High Court of Cassation and Justice and of other courts, it is rightly issued in the judgment of species from the area of sports betting and the operation of slot machines. I am aware of this, however, as I was directly involved in formalizing a professional approach that, in my opinion, was perfectly legal, but in the opinion of ANAF inspectors it was not so. The justice, represented by the High Court, at least in the last decisions it issued, gave justice to the industry, this being a point won for those who believe in fairness and professionalism.

Another specific tax problem arises for example when the gambling organizer performs both gambling and public catering/bar restaurant activity in the same locations, although its main object of activity is the operation of slot machines. The taxation of the revenues/profits obtained from the operation of slot-machines is done according to the general rule of calculation of the tax on profit/income, while the bars/restaurants pay the „specific tax”, calculated according to rules specific to this type of activity, presented expressly in Law no. 170/2016 and established on the basis of administrative rather than economic criteria. Different taxation requires separate accounting and fiscal records, which often involves risks for the taxpayer, in the case of ANAF control, of interpreting how the separation of activities was highlighted in the taxpayer’s accounting.

There is also the problem of bonuses granted online, especially in the case of relatively small companies that are taxed as micro-enterprises, but here the problem is generated by the specific gambling legislation, which includes bonuses in the organizer’s revenues. Being a problem of specific legislation, I think that ONJN can be helpful here and could reformulate the text regarding the treatment of bonuses in the sense of eliminating the provision that obliges them to be registered in the accounting and keeping the provisions regarding the reports t  o be made to ONJN.

The bonuses that are introduced by the specific legislation in the accounting revenues, action which, from my point of view, represents a lack of economic and accounting logic, generate income tax for micro-enterprises. For those paying tax on profit, the implication is not so important because there the negative effect is canceled to some extent by the resumption of bonuses and expenses.

Dan Schwartz

The eternal story of Romanian legislation

Do these problems come from the existing legislation?

There are problems arising from the legislation in general, both from the point of view of the wording and from the point of view of its interpretation. For example, a problem of interpretation and understanding would be that of gambling revenue definition, a definition that seems very difficult to understand yet, and I do not understand why it is so difficult to understand for other people. In principle, the definition of income must be different depending on the types of gambling. We cannot have the same definition of income when we talk about a casino or when we talk about an operator that deals with the operation of slot machines, or who operate sports betting; the definition and recognition of the revenues must be made according to the specific activity that generates them, in compliance with the accounting principles governing the accounting legislation in Romania.

In Romania, and not only, when talking about fiscal issues we must also refer to accounting because there is an interconnection between the two activities and when we talk about taxable income/profits, the tax legislation always refers to the revenues/profits registered in the accounting, they being the basis for starting the calculation on establishing the tax, either on income or on profit, depending on the size of the entity that calculates the tax legislation at one time (in Romania). If we do not have a clear vision on how the income in the accounts should be recorded, we will therefore have problems in the fiscal area.

We have nothing to change in the accounting law, because the Romanian accounting law is largely correlated with the European directives applicable in the field, only that its interpretation leaves something to be desired because it is or was made by ANAF and MFP in a way that was not correlated with the economic reality and historical evolution of accounting principles. However, changes can be made to the specific legislation promoted by ONJN.

According to the European approach, and not only, one of the basic principles is that of the prevalence of economics over the legal or, as I like to use more, of the prevalence of „substance over form”. The form in which things are presented is less important than their essence, their meaning. So when analyzing an income, it has to be analyzed its economic nature, not the legal one as it is presented in a normative act. We take another necessary step, and argue that for each type of gambling, the taxpayer must have the freedom to define his income in accordance with the accounting principles that are supported and introduced in Romania by law, but at the same time in according to the specific economic activity encountered with the respective taxpayer. Thus we come up with the conclusion that the definition of income cannot be standardized for the simple reason that it is not a single one, but they are, must and can be defined specifically for each type of gambling, while respecting the general accounting principles of revenue recognition.

This was exactly the reasoning behind the High Court’s decisions on sports betting, precisely this reasoning has led to the conclusion that the revenues must be defined according to their economic reality and the legal reality, which cannot be eliminated, but which must be correlated with the economic one.

A better relationship between authorities and companies requires a change of mindset

What can be done for a better relationship between state representatives and economic agents? (Here we consider the digitization too).

Let us not forget that the gambling industry is among the most digitized. Operators’ servers are monitored electronically, in real time, by ONJN. Instead, the bureaucracy area is not solved, the area where paper reports are still required, but this is not about digitizing the industry, but about digitizing Romania in general, and especially at the level of the state administration, not just the fiscal administration. Everything that means state administration should enter the age of digitalization and thus communicate much easier with taxpayers, who are one step ahead, many of them have digitized their operations, but they have no correspondent in the other side of the State. I was recently invited to a TV show where I talked about exactly this issue: you go to ANAF and you are wanted on the 3rd floor to sign the digital form, how can it be considered a ”digital form” when you have to complete it on the 3rd floor of the ANAF headquarters …? This is a problem because there is still opposition to digitization, because those who work in administration, and I am not referring only to those who work in financial administration, but all that administration means, are scared about digitization, because digitization, they believe, could lead to job loss. Then, being afraid, they oppose.

I met this mentality more than 200 years ago, at the first industrial revolution, when workers rebelled and destroyed cars. Now the machines are not destroyed anymore because they are in the inventory of the company and their destruction implies material liability, but when bidding for software solutions and hardware purchases, it seems that the are probably looking for the weakest companies, which deliver a poor or technologically outdated product. Apart from the fact that the software is bad, unfortunately, the civil servants not having most of them digital education do not know how to operate it.

I’ve said this before and although I might be accused of repetition, I really like this aphorism attributed to Einstein: „We cannot be more artificially intelligent than we are naturally idiots” (by „idiots” meaning „uneducated”). It’s useless to have a very good machine and powerful software if we do not know how to use them.

It is often said that thefts occur in the gambling industry, but my question is how can someone steal from the gaming industry when ONJN has a proxy server where everything in the company is monitored in real time? If the authorities do their job and are well-intentioned, and I am sure they are well-intentioned, then why, through various statements, does a negative image of the entire industry appear?

In the case of online games there is an obligation to audit the system, we do this type of audit, and I can say that improvements can be made here because the procedure imagined by ONJN is acceptable, but perfectible. So you can work on it in such a way that the auditor gives more assurance to the regulator when they put their signature and stamp on a system audit report, because this audit that is done is a computer system audit and then of the compliance between what is presented digi­tally with the physical reality of the transactions. This could also improve the collaboration between ONJN and the financial audit companies.

We had discussions at ONJN level and we tried to help the regulator as much as we could to create the safest and most efficient procedures. Some proposals were supported, others were not.


Cash registers are not required under the given conditions. The introduction of an exception would be welcome

Certain fixed-odds betting operators request the removal of paragraph 2 of art. 12 of the Norms regarding the obligatory possession of the Fiscal Markers by the Gambling Organizers, more precisely in the case of the Gambling Organizers of the fixed odds type. We know that ANAF has the most important decision in this case. What’s your opinion? What should be done in this situation?

At this moment we are wrong in this regard because when the issue of the existence of cash registers at fixed fee betting rooms was raised, the ANAF insisted, but at the same time could not resolve their taxation. The cash registers had to be digitized and connected to an ANAF server where the tax authority could have all the transactions carried out on them. In my opinion the cash registers represent additional costs to the taxpayer, difficulties in operation from the point of view of control too and do not lead to great results. If the activity is already monitored electronically by ONJN in real time, there is the proxy server where all transactions are already analyzed, why is there still a need for another set of controls made through cash registers, especially now that the ONJN has moved to the Ministry of Finance? It can no longer be said that there is no collaboration, the collaboration is even closer, both the ONJN and ANAF are under the umbrella of the Ministry of Public Finance, so it is possible to communicate and collaborate better. Why is it necessary to have investment and operating costs when all this information is collected in real time, digitally?

In conclusion, in my opinion the cash registers are not required under the current conditions, there­fore the introduction in the legislation of an excep­tion for the fixed odds bets would be welcome.

Dan Schwartz

The Romanian justice system started to repair the injustices from 2015-2016

Important news for the entire gambling industry was received at the end of 2020 when the decision of the High Court of Cassation and Justice confirmed that the way in which the gambling industry applied the provisions of art. 18 of the Fiscal Code (2003) is the correct one, thus invalidating the conclusions of the fiscal bodies retained in the fiscal inspection reports issued during the years 2015-2016. What’s your explanation?

There are two definitive decisions issued by the ICCJ in favor of the taxpayer but which were not motivated. It all started from the Brașov Court of Appeal where the lawyer who handled the case (who did it „pro bono” because the taxpayer who was inspected by ANAF was forced to close his business because of the amounts owed) used in his arguments a professional judgment made by us at the request of Romanian Bookmakers. The Court of Appeal accepted the reasoning presented by the lawyer, who took over and put in legal form our professional arguments, and the judge in Brasov accepted them without even asking for an accounting expertise, whereas she considered that they were so explicit and in line with the Romanian and European legislation, that they forced him to give justice to the taxpayer. That decision was also confirmed last year by the High Court of Cassation and Justice.

Why did companies and people have to be destroyed, and money wasted on all sides, both taxpayer and State level?

I am glad you’re asking me this question, because I asked the same question, as directly as possible, when the ANAF fiscal controls were initiated, both for the inspec­tors who carried out the controls and at the level of ANAF management. Not only me, there are many experts who consider that the judgment promoted by ANAF inspectors is professionally wrong.

When the tax controls were carried out, there were two perspectives, that of the taxpayer and that of the tax authority. The tax authority argued that all taxpayers have a wrong professional approach to the issue, but the High Court ruled that the tax authority was wrong. If a taxpayer makes mistakes, then he must pay for them. The question now is: who is responsible when the state autho­rities go wrong? The answer is, we, the taxpayers too!

The interpretation is probably the Achilles heel in the area of economic legislation, and not only. What do you think and when you think that we will succeed in having legislation that will no longer allow room for interpretation? What must happen?

Legislation that does not allow interpretations does not exist. There is no perfect legislation, not even Moses’ code of laws in the Bible is perfect legislation, so we cannot have it as much as we would like. Whenever the problem of a regulation is raised there is the risk of interpretation, when rules are created they will be interpreted. There is nothing perfect, nothing ideal. It is not a Romanian problem, it is present in the laws of all European countries. Legislation involves the problem of interpretation and because of this there are judges, prosecutors and lawyers, precisely because when the problem of interpretation is raised, arguments are made and a decision is made that is closer to the way society judges things at a given time. The first restriction is inherent, we have nothing to do with it.

We are taking another step, in order to reduce the risk of adverse interpretations, the legislation must be very clear, unambiguous and stable. Unfortunately, in Romania, we often have legislation that uses terms that are improper, the use of professionally correct terms assuming a good if not perfect knowledge of the language in which the legislation is written. One of the big problems of the Romanian legislation is the poor knowledge of the Romanian language at the level of those who draft the laws, fact that has been confirmed numerous times by public interviews and statements by some politicians and parliamentarians, as well as by the way in which the Romanian laws are written. It would seem that the legislators do not know the Romanian language, the meanings of the words, the direct meanings and the semantics of the language well enough. Then, in the legislation, specialized language appears, which is why those who write the laws should take into account specialists who, in their turn, should be careful not to use exaggerated professional jargon because it will only be understood by other specialists. Those who apply the law must have reasonable knowledge in the regulated field, which is why the legislation should avoid the excessive use of pro­fessional jargon and be written in a clear, unambiguous language, understandable by all who apply it.

The law has several characteristics: it must be clear, concise, simple, unambiguous; but, unfortunately, this isn’t happening in practice.

In order to have better legislation with fewer disputes before the court, we must have more educated legislators from all points of view, both in terms of the language in which they legislate and in terms of the specificity of the respective legislation.

If the above-mentioned things happen, the risk of error, the risk of interpretation, the risk of ambiguity decreases and decreases significantly as the level of professional training and the intelligence level of the legislator increases.

After these we need something more, we need a cross-correlation of the legislation, we cannot have fiscal, accounting, specific legislation, that will not be cross-correlated. The best example is the fact that in the specific legislation the revenues of the gambling organizers are defined as GGR whereas in the accounting legislation they are defined starting from the general accounting principles, thus arising a problem of interpretation. The tax legislation in the case presented above does something even more unusual, it says that the minimum tax is paid in a quota of 5% applied on the revenues determined according to the accounting legislation, not according to the specific legislation. And then I wonder why, because the specific legislation, and this is an accepted principle of law, the special law is stronger than the general law. From a fiscal point of view, the special law should be the law of gambling, it should be stronger than the accounting law, if it considered that the accounting law should extract only one information for gambling: REVENUE = GGR. Therefore, the tax law should have said that it applies 5% to revenues as they are defined by the specific legislation and not by the accounting law, which, if it had happened, would have avoided all the tax disputes that – they had a final resolution only in court. This is an example of poorly made and uncorrelated legislation. The fiscal law did not correlate with the specific legislation, it tried to correlate with the accounting law without taking into account that the accounting law allows for more revenue approaches, so it allows differentiation, which in taxation is very dangerous because it can lead to different taxation modalities from one type of gambling to another.

In conclusion, if the legislators are not sufficiently trained, if they do not take into account the opinion and the access of the specialists in the legislative process, if the basic legal principles of the creation of legislation are not respected and if the legislation is not interrelated taking into account the principles of law, then the risk of interpretations being numerous and contradictory increases.

Another problem is the frequent change of legislation. The more often the legislation changes, the greater the possibility of error.

Unfortunately, this happens frequently to us!

Author: Editor

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