Garnishments in the gambling industry: legal and practical aspects
by Cosmina Simion Managing Partner și Alina Tace Partner la WH Simion & Partners
Alina Tace Partner WH Simion Partners
Cosmina Simion, Managing Partner WH Simion Partners
In Romania, the gambling market has developed at an accelerated pace, being marked by technological innovations with a significant impact on the user experience, redefining the standards of accessibility, interactivity and security, thus contributing to the considerable expansion of the active user base in this sector.
Already a significant component of digital entertainment, which encompasses a significant segment of consumers whose income from participating in gambling is subject to taxation, the gambling industry has naturally been targeted by the state authorities which have increased efforts to collect outstanding debts from taxpayers, including through garnishment measures on gambling winnings.
As a general rule, garnishment is, in simple terms, a form of enforcement whereby sums of money or assets owed by third parties to the pursuing debtors are seized and transferred to the pursuing creditors.
In the heavily regulated gambling industry, garnishment is a legal instrument with an impact both for gambling operators (which have the status of garnishee third party, and the obligation to implement and implement such enforcement measures on players may have operational implications) and for players (who have the status of pursued debtors, being the ones who bear the direct consequence of these measures consisting in depriving them of the funds in the gaming account).
The most common in practice in this area are, as we have previously mentioned, the garnishments instituted by the National Agency for Fiscal Administration (ANAF) on players, which have already become a common method for recovering taxpayers’ tax debts.
When and how is garnishment instituted?
According to the rules of the Fiscal Procedure Code, the garnishment is considered to have been established from the moment of receipt of the garnishment establishment notice by the garnishee third party (operator). At the same time, however, as regards the object of the garnishment, only those amounts or assets due or that will be due in the future to the debtor by the garnishee third party are subject to garnishment, based on legal relationships existing at the time of communication of the garnishment notice. If such a relationship does not exist prior to the communication, the notice cannot produce legal effects.
In the field of gambling, the funds (real money) in the player’s gaming account (including winnings) may be partially or fully withheld by gambling operators to cover the player’s outstanding debts, based on a formal request from the tax authorities. However, this action implies the obligation of gambling operators to verify and identify whether, for the players who are targeted by the garnishment measure, there are amounts that are or may be subject to garnishment, based on the legal limit imposed on the garnishment’s object, which may raise difficulties in practice (especially in the case of traditional gambling operators).
Garnishments in the gambling industry
What does it mean, from a practical point of view, for a gambling operator to implement garnishments?
According to the legislation in force, the garnishee (the gambling operator) is obliged to record both the day and the time of receipt of the garnishment notice. Also, if, on the date of communication of the garnishment notice, the operator (as a garnishee third party) does not owe any amount of money to the pursued debtor (the player) or will not owe such amounts in the future on the basis of pre-existing legal relationships, the operator shall notify the enforcement body within 5 days from the receipt of the garnishment notice. If, however, there are amounts due to the player, they must be retained and transferred to ANAF within 3 working days.
But what happens to the amounts due to the player that may become due in the future, such as winnings that could be generated by bets in progress or winnings already generated by bets validated as winner but for which players have not yet gone to the agencies to collect them? This is where the operator must carry out its analysis in order to determine whether there are such amounts, which may be due in the future to the player (and therefore subject to garnishment at the time they become due), which result from legal relationships pre-existing at the time of receipt of the request for garnishment (for example, the bet, although still in progress, it was placed before the date on which the operator was notified of the garnishment measure).
In the event that there are such amounts, depending on their nature, namely amounts that are due for payment at the time of receipt of the garnishment or amounts that may become due in the future, the first amounts will be retained and paid according to the request in the notification sent by the tax authorities, namely within 3 working days from the date of the garnishment – date that coincides, as mentioned above, with the date of receipt of the garnishment notice by the operator, and the latter amounts will be paid within 3 days from the date on which the claim becomes due.
If, after the verifications carried out, the operator has not identified amounts to be subject to the garnishment notice, the tax authorities will be informed that the operator does not hold such amounts in respect of the player, and after the communication of this response to the tax authorities, the garnishment request ceases to have effects. In the event that, after submitting this response to the tax authorities, the player in question, previously targeted by the garnishment measure, will subsequently access the services of gambling operators and will make deposits/obtain winnings, we consider that it cannot be interpreted that any such amounts deposited/won could be subject to previous garnishments (since they are generated on the basis of legal relationships subsequent to the establishment of those garnishments).
Of course, the analysis must be carried out on a case-by-case basis and differently depending on the specifics of the gambling activity (traditional or remote) in order to always ensure not only that the requests of the tax authorities are addressed correctly, but also that the players’ rights are fully respected within this procedure (where we consider that the player concerned by the garnishment measure must also be informed by the gambling operator about the measures ordered on the funds in his gaming account as a result of the implementation of the garnishment).
Therefore, the implementation of garnishments is not a simple task for gambling operators, who are forced to adapt their infrastructure and internal procedures in order to implement compliance and management mechanisms to address such requests from tax authorities properly and on time, while respecting the players’ rights.
