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THESIS: Legalization & Taxation of Texas Hold'em Online Poker in Poland by Kamil Wesolowski
THESIS: Legalization & Taxation of Texas Hold'em Online Poker in Poland by Kamil Wesolowski
FACULTY OF ECONOMICS
Kamil Wesołowski
Sopot 2014
Sopot, 23.06.2014
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Author‘s signature
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Tutor‘s signature
2
Sopot, 23.06.2014
Kamil Wesołowski
Faculty of Economics
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Signature
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Table of contents
Introduction ............................................................................................... 1
2.3 Countries which legalized and taxed Texas Hold‘em online poker ...... 16
Bibliography ............................................................................................. 29
4
Introduction
The purpose of this thesis is to point out the benefits of legalizati on and
taxation of Texas Hold‘em Online Poker in Poland. Texas Hold‘em is poker
variation in which edge can be obtained by mathematical application, skills
and software. Game is relegated to the black area in spite of players desire to
pay taxes to legally spend won money. Currently online poker games are
prohibited in Poland. Prohibited but not being blocked or monitored, which
means players do not have to pay taxes from their winnings. In result
government does not receive any income from players nor from offshore
casinos. In fact, there are tens of thousands of players from Poland, which
stands for huge amount of taxation income.
In following three chapters I will guide you through Hold‘em case starting
from basic rules of the game and finishing at expected income from taxation
in Poland.
1
1. Texas Hold‘em Online Poker
Poker industry is well prepared and countries can benefit even more if
cooperating with online casinos in implementing this great machine into
work. It is win-win situation for both of sides. Gambling companies are
operating already on Polish market.
There is only one visible reason why online poker is not legalized, and it is
not protection against gambling. If it was so, lotto and other pure gambling
activities would be banned. Most important cause in this case is ground
casinos lobby. Legalizing online poker would hit hard on ground casinos
revenues, because taxes are almost unbearable for professionals already.
People chose to stay safe at home, deposit mone y directly from bank account
or other e-wallet in 15 minutes, and play. Politics do not realize that it is
happening already. Although, it might be the case where a ha ndful of
corrupted people block favorable law for personal gains, while country loses
are huge.
,,The objective of poker is to win money by capturing the pot, which contains
bets made by various players during the hand. A player wagers a bet in hopes
that he has the best hand, or to give the impression that he holds a strong
hand and thus convince his opponents to fold (abandon) their hands. Since
money saved is just as valuable as money won, knowing when to release a
2
hand that appears to be beaten is just as important as knowing when to bet. In
1
most poker games, the top combination of five cards is the best hand.‖
In Hold‘em table there is capacity from two to ten participants. Best players
to maximize profit tend to play poker on tens of tables simultaneously. This
means that commission is charged on each table separately. For Hold‘em,
there is used standard 52 card deck (23456789TJQKA ) in four suits.
,,At the start of a Hold‘em hand, after the two blinds have been posted, all
players are dealt two cards facedown. These are known as the hole or pocket
cards. Players then make a decision to call the blinds (match the big blind),
raise the blinds (increase the bet) or fold (quit playing and throw their cards
away, facedown, to the middle of the table — known as mucking).
Blinds amount is determined by the stakes level. For example, while playing
on stakes 1/2$, small blind is 1$ and the big blind 2$. Maximum amount of
money which player can bring to one table vary from 20 to 300 big blinds.
Each player is dealt two hole cards and all of the participants will share five
community cards. Hole cards are dealt face down and no other player than
they are dealt to can look them up. While community cards are dealt on
middle of the table and are visible to everyone. Community cards are dealt
partially, which is called rounds or streets. Th ere are four rounds. First is
called preflop, only hole cards are dealt. Flop, where three community cards
1
Harroch R. D., Krieger L., Poker for Dummies. New Jersey 2000, p. 12
2
Harlan M., Texas Hold'em for Dummies . New Jersey 2006. p. 12
3
are unrevealed. Third street is called turn, where one card is dealt. Last round
is river where the last card is distributed. From these seven cards (two hole
and five community cards) players complete best five card hand.
In every round there is place for betting. Which means players must act
accordingly to actions made by other players , on earlier positions. On its
turn, player can fold a hand which means that it is no longer possible he wins
the pot. He can also stay in hand: by making bet, calling the other player bet
or re-raising other player bet. There might be situation when player puts all
his chips into the pot which is called all -in. When other players stacks covers
person with all-in, he can win no more than multiplicity of his stack from
every person who stays in the hand. Rest is so called side pot. Every betting
round looks the same.
Hand can be won with or without showdown. If there were two players on the
river for example and one of them made bet, other called – there will be the
showdown. In this situation, only hierarchy of cards counts. If the other
player would fold – winner doesn‘t have to show his cards and it is said that
he won by bluff.
Texas Hold‘em hand is made of exactly five cards. Starting from the weakest:
High card – if there was no hand completed, highest 5 cards are taken
into account.
One pair – two cards of the same value
Two pairs – two pairs of the same value
Three of a kind – three cards of the same value
Straight – five cards in a order but no in same color. Ace can be used
also as 1.
Flush – five cards of a same kind of color
Full house – one pair and three of a kind
Four of a kind – four cards of the same value
Straight flush – five cards in order in the same kind of color
Royal flush – TJQKA in the same color
In case if winning players have the same hand, there is a split pot .
4
Texas Hold‘em has few variations, the most common are:
Such rooms typically do not offer slot machines or video poker, or other table
games such as craps as found in casinos. However, a casino will often use the
term "cardroom" or "poker room" (usually the latter) to refer to a separate
room that offers card games where players typically compete against each
other, instead of against "the house." 3
Poker rooms are mostly operated from offshore islands, where jurisdiction
allows for obtaining licenses to offer gambling services. Examples of
offshore islands with soft gambling law are Malta, Gibraltar, Isle of Man.
3
http://en.wikipedia.org/wiki/Cardroom [accessed August 10 t h 2014]
5
send scan of any document proving identity and scan of bill registered to the
same address. This is also protection against underage.
For every hand/tournament pok er room charges fee called also rake.
Poker is a player-versus-player game, and the house does not wager against
its players (unlike blackjack or roulette), so this fee is the principal
mechanism to generate revenues.‖ 4
Poker room checks whether players acted naturally and played hand as they
would if they were to win, not to launder. If strange behavior is detected,
hand histories are examined manually by personnel. If game history is
suspicious, poker accounts with balances become frozen until clarification.
Figure 1 is here to better understand how many Polish players take part in
illegal online Texas Hold‘em games. Combined with information from Table
1 assumptions about number of Polish players can be made.
4
http://en.wikipedia.org/wiki/Rake_(poker) [accessed August 10 t h 2014]
6
50,00%
45,00%
40,00%
35,00%
30,00%
25,00%
20,00%
15,00%
10,00%
5,00%
0,00%
2008 2009 2010
PokerStars 30,53% 36,05% 40,96%
Full Tilt Poker 14,65% 19,45% 21,73%
PartyPoker 8,72% 7,22% 6,12%
Others 46,10% 37,28% 31,19%
Figure 1. Global online poker market share 2008 -2010, available at:
https://www.academia.edu/724198/The_Market_for_Online_Poker , [accessed August 10th
2014]
Table 1 show the numbers based on Polish players. Every hand was taken
from cash game tables, which mean rake has been collected. All these hands
are stored and available on PTR website. Please note that there are neither
players nor hands from PokerStars taken into account , which is biggest room
of online poker.
7
Polish players in poker market calculations based on above data refer to
Chapter 3.3.
Figure 2 Samples over 5,000,000 hands with winrate 2,5BB/100, available at:
http://pokerdope.com/poker -variance-calculator/ [accessed August 10th 2014]
8
Figure 2 illustrates possible outcomes of playing 5,000,000 hands, with
winrate of 2.50 big blinds per 100 hands. Every outcome lay in the profit
area.
An out is a card (or sometimes a sequence of cards) that will turn a losing
hand into a winner. People tend to make a big deal out of counting outs, but
it‘s really pretty simple as long as you keep in mind the basics of a deck of
52 cards, namely:
You count one out for every card that will make your hand.‖ 5
For example, if You are drawing to flush of hearts, having AhKh in hole
cards. Flop is 3h8hJs – there are 13 (all of hearts) – 4 (already owned) = 9
hearts left in deck. You are said to have 9 outs to hit flush of hearts.
Pot odds is a term used to describe the ratio of the pot size relative to the bet
you have to make to call. For example, if you have to make a $5 ca ll on a $20
pot, your pot odds are: 20 ’ 5 = 4. This is expressed as a ratio: 4 -to-1. In
other words, if you call for $5 and win, you are paid four times what your call
cost you.
Note that you do not count the calling bet you put in the pot as part of the pot
odds. Again, in the example, you‘re making a $5 call on a $20 pot — 4-to-1
pot odds. You are not making a $5 call on a $25 pot.‖ 6
5
Harlan M., op. cit., p. 142
9
Now if we combine these two simple math calculations, we have draft of the
information which will help us in making most profitable decision. If pot
odds seem unfavorably compared to probability of drawing a hand, we simply
checks/folds till the end of hand.
When calculating probabilities for a card game such as Texas Hold 'em, there
are two basic approaches. The first approach is to determine the number of
outcomes that satisfy the condition being evaluated and divide this by the
total number of possible outcomes. For example, there are six outcomes
(ignoring order) for being dealt a pair of aces in Hold'
em: A♠ A♥ , A♠ A♦ , A♠ A♣ , A♥ A♦ , A♥ A♣ and A♦ A♣ . There are 52 ways to
pick the first card and 51 ways to pick the second card and two ways to order
the two cards yielding possible outcomes when being dealt two
cards (also ignoring order). This gives a probability of being dealt two aces
of .
ways of getting dealt an ace out of 51 choices on the second card after being
dealt an ace on the first card for a probability of . This value is the
conditional probability that second card dealt is an ace given the condition
that the first card dealt is an ace. The joint probability of being dealt two aces
is the product of the two probabilities: .
6
Ibid., p. 144
10
stay in hand, we should assume how much can we win from other players
when our hand will be completed.
11
2. Legalization of Texas Hold‘em online poker in Poland
Online Poker is specifically outlined in art. 29a, 19 November 2009 act about
gambling game, which states:
First point means that gambling companies are not allowed to arrange online
poker games accepting Polish players. Fact is that Polish players are not
banned on even single one poker room, from existing hundreds of them.
7
Ustawa z dnia 19 listopada 2009 r. o grach hazardowych , Journal of Laws of 2009, No.
201, item 1540.
12
threatens us with punishments because this law is not consistent with EC
Treaty. It is worth writing that to this moment; there were no individuals
accused of playing online poker in Poland.
Greece in 2002 passed a very similar law that also miss ed the European
Commission in the implementation. The Court of Justice held that such action
is unworthy of a member of the European Union and imposed a € 31 799 for
each day of delay in the change of the law.
8
http://www.rga.eu.com/pages/en/gamb ling-in-the-eu.html [accessed August 10th 2014]
13
,,Members of the European Parliament (MEP) attended a workshop in
Brussels last month at which Professor Friedrich Georg Schneider, an
economist at the Johannes Kepler University of Linz, Austria, presented
evidence that all gambling – land-based and online – accounted for a mere
0.5% of total money laundering activity. Schneider singled out online poker
as a particularly ineffective method of laundering money, in no small part due
to the high transaction costs.
At the same meeting, Sven Stiel, Director Northern Europe for PokerStars ‘
parent company Rational Group, stated that the relatively small sums
involved in online poker transactions ―have no relevance with regard to
money laundering.‖ Stiel also noted that since online gambling is a non -cash
business, most of the money that flows into the site has already been handled
(and presumably vetted) by the banking system. When MEP Jürgen
Creutzmann tried to throw Stiel by asking him about anonymous payment
methods, Stiel noted that prepaid cards can only be loaded with minimal
sums, usually a maximum of €100 to €150, and the use of these cards requires
players to log in via their individual accounts, making them easily
identifiable.‖ 9
Poker rooms have very sophisticated systems reviewing every hand, whether
if it was played logically and without players collusion. Beside from that fact,
9
Stradbrooke S., Experts: Online Poker “by no means relevant for money laundering” ,
available at: http://calvinayre.com/2013/04/06/business/experts -online-poker-by-no-means-
relevant-for-money-laundering/ [accessed August 10th 2014]
14
TÜV Trust IT (TÜV Austria Group) made research recently, which states that
money laundering in poker is unsuitable and too expensive.
There are ways to limit number of addicts, make them gambling harder.
Poker software already has functions which restrict players to certain total
deposit amount, single deposit amount s, maximum stakes on which gambler
can play and more.
These combined with live analysis of losses might be the basis of excluding
player from participation in poker games. Ban can maintain for period of time
or lifetime if person show serious gambling addiction signs.
If underage or legal age account will be c losed for a reason, it is hard to get
back into the game. One user can open only one account. Every new on
15
similar personal data or IP address will be banned immediately. The same
with account sharing. There are advanced systems involved, which monitor if
there is possibility that account is shared. That means used by more than one
user.
2.3 Countries which legalized and taxed Texas Hold‘em online poker
Denmark
A Danish law used at the Supreme Court in Denmark in 1926 stated that it
was illegal to make a living from gambling (such as poker). The
implementation of the Danish license system moved online poker from a grey
area to a regulated legal business for players and operators.
You are allowed to have offices and employees in Denmark. You can have
Danish content on your websites and player winnings are exempt from taxes.
The prize of running a casino & poker room is 20% of the gross income
meaning that you cannot deduct marketing expenses, bonuses, rake back,
affiliate commission etc. For a poker room it is 20% of the total rake and for
casinos it is the total amount wagered minus winnings.
16
It is legal for Danes to play on a non -Danish licensed poker rooms. If you
play on a poker room licensed and regulated in EU the winnings are still
considered tax free according to the Danish and the European Union‘s tax
laws.‖ 10
Germany, Schlezwig-Holstein
Licensed operators from the area of the European Union may obtain a license
Operators who would have applied for a license in Schleswig -Holstein are not
required to have their headquarters in the federal state, in another country of
the EU or in the Member State o f EEA. To get a license, it is sufficient that
the branch office is located in one of these locations, and the headquarters
may be located anywhere in the world. This certainly makes the German
market more attractive to all non-EU companies;
10
Smith E., Danish gambling license, available at:
http://www.pokerhistory.eu/history/major -changes/danish-gambling-license [accessed
August 10th 2014]
17
To calculate tax paid in Schleswig-Holstein, there must be taken into account
payments from players all over Germany, not just those living in Schleswig -
Holstein.
France
Italy
Initially there were announcements that the government will protect citizens
against gambling and poker will be banned. However, in the end, it was
decided to legalize through government licenses. PokerStars has licensed
quickly.
At first, Italian players were unsatisfied bec ause they were allowed to play
tournaments with a maximum buy-in up to 100€. Cash games were prohibited.
After few months players were able to play tournaments up to 250€ and cash
games buy-in also up to 250€. Entry fee for cash game and tournaments
should not exceed 1,000€ in one session. Italian market, like the French,
developed a fairly rapid.
18
Table 2 include regulatory status of online poker in chosen countries. Poland
should not even be considered as in process of regulation.
11% on gross
B ELGIUM Regulated 25-50%
income
15% on net
C ZECH R EPUBLIC In progress None
income
20% on gross
D ENMARK Regulated None
income
Poker winnings
outside EEA are
F INLAND Regulated None taxed and players
have to pay
normal income tax
34% tax on gross
F RANCE Regulated None
income
30% tax on gross
G REECE Regulated 10%
income
Regulated in
20% tax on gross
D EUTSCHLAND Schleswig- Not introduced yet
income
Holstein
19
cames
No licensed
N ORWAY Regulated Around 30%
operators
25% from every
R OMANIA Regulated Not decided yet over 600 RON
won
From every won
S PANISH Regulated 20/25%
pot
None from EU
Local operators
sites, 30% tax on
S WEDEN Regulated pay 36% of
gross income
income tax
outside EU sites
15% tax on gross
G REAT B RITAIN Regulated None
income
Table 2 Regulations on Texas Hold‘em Online Poker over the world , available at:
http://resources.pokerstrategy.com/2014/03/06/Poker_Regulation_by_PokerStrategy.pdf
[accessed August 10th 2014]
Most successful regulations are these which do not put huge tax on players,
as for professionals they are critical about the EV of games. Some countries
restrict casinos to allow only their countrymen, which greatly lower turnover
of players, which in turn discourages professionals to play.
20
3. Taxation of Texas Hold‘em poker in Poland
In accordance with art. 2 paragraph. 1 item 6 of the above Act. The minister
responsible for public finances settle the decision , whether a game or a bet
with the characteristics listed in paragraph 1-5 are a game of chance, mutual
bet or slot machine, within the meaning of the Act.
It should be noted that the above regulation does not specify whether all
variations of poker is a game of chance. Against this background a dispute
arose as to the assessment of sport poker Ministry of Finance in the
interpretation concluded that the card game - poker sports (Texas Hold'em) is
a game of chance within the meaning of Art. 2 paragraphs. 1 point 5 o f the
above gambling law situation commented on the Supreme Administrative
Court in Warsaw, which held that, in order to take a position, whether the
above variation of poker is a game of chance and therefore whether or not the
regulations do not apply. All the above Act must appoint an expert to give an
opinion in this regard. The poker game should not be eligible for gaming
because it prevails element of skill and not random.
11
Ustawa z dnia 29 lipca 1992 r. o grach i zakładach wzajemnych , Journal of Laws of
2004, No. 4, item 27, as amended.
21
paragraph. 6 cited above, law belongs to all varieties of poker and Gambling
Act. regulations apply. 12
12
Kurzępa B., Kotowski W., Tyt. I dz. II roz. 9 art. 107, in: Kodeks karny skarbowy.
Komentarz, Kurzępa B., Kotowski W. (eds), Warsaw 2007.
13
Ibid.
22
accordance with the position of the Polish authorities in such cases, if the
player is in Poland, can be exposed to the above penal consequences.
Notwithstanding the above in the act of ga mbling Art. 82 there are provided
the financial penalties for a violation of applicable rules. For arranging
gambling without a license or permit - the amount of the fine will be 100% of
the revenue derived from arranged game; without the filing or registration,
without the required machine or device for the game; for arranging slot
machines outside of the casino game will be a fine of 12 000 zł from each
machine. Financial penalty will be incurred by the participant of gambling
game, which is without a license or permit, and its height is 100% of the
value of winning. As noted by L. Wilk "[...] in the light of the observations
of comparison of the provisions of art. 89 of the Law on Gambling and art.
107 and 109 k.k.s. there should be no doubt that there is practical possibility
of be punished twice or same natural person for the same act - once under kks
and the second time with a fine art. 89 Gambling Act. In practice, the
possibility of the confluence of these sanctions is more realistic in the case of
participating in illegal games than for their organization, as t he "arranging"
fine is usually imposed to collective entity and not a natural person. " 14
Arranging the game of poker is subject to tax . The tax base tax in the case of
poker games (where the casino is the organizer and the players play each
other) is a poker tournament held annually in the form of poker games -
winning amount less the amount of the entry fee for the tournament; (Article
73 paragraph 8 on gambling).
14
Wilk L., Financial penalties in the law on gambling , in: Prokuratura i Prawo 2011, No.
1, p 156
23
In addition, Art. 71 paragraph. 2 and 3WW. Act states that "The object of
taxation of games is:
3) The tax obligation on gaming tax arises on the date of beginning of their
business. In poker tournaments held annually in the form of poker games tax
obligation arises at the moment of accession to the tournament.
By contrast, Article. 73 cited above of the Act provides that "the tax basis of
games is:
1) in lottery money, lottery and telebingo -the total revenues from the sale of
tickets or other evidence of participation in the game;
Proceeds derived from poker (in the case of participation in the game by a
resident of Polish in the game outside Polish borders) in this person can be
taxed, unless the relevant international agreement provides otherwise
The result of the above regulation is that playing poker permitted only in
casinos is not profitable, nor for the organizers of these games or players. In
such a situation, Polish players participate in games online and outside the
RP. There are initiatives that this state should change. There were found
Parliamentary Group on Effective Regulatory Poker Game 15
24
There were also doubts about the compatibility of Polish regulations with
Article 56 of the Treaty on the Functioning of the European Union "Until the
entry into force of the Act, in Warsaw were held a regular poker tournaments
of international rank, including the European Poker Tour, in which were
involved up to four hundred participants, including players from the forefront
of world stars of poker. As a result of the introduction of the current
measures (including tax on winnings in the amount of 25%), Poland ceased to
organize any of international tournaments, while most of the existing players,
who play legally, according to the former provisions, participate in games
organized without permission. Tournaments held in casinos are a consequence
of purely local with a minimum buy-in (50 - 150 PLN), and the number of
tournament participants is symbolic, not to exceed 30 people at one time.
Changes in the legal regulations concerning the above matter seems to be
necessary and, therefore, all the desired
There are few ways how to successfully collect taxes from online gamblin g.
The most convenient method would done at the level of poker room. That
means every deposit and withdrawal is visible for government, and for
example once a year sum of winnings or loses would be counted, while
winnings would be subject of tax, deducted from balance automatically . It is
very convenient as country has very small to implement, and players do not
have to take any additional steps to pa y their gambling related taxes.
25
Polish banks. It would be from scratch customized to make gambling
payments easier, tax included.
There is one more, but not so convenient method. Players could fill tax
returns yearly, but that would make more work for both sides. Expenses
would also be higher.
Actually it is very hard to determine how much Poland would benefit from
Texas Hold‘em taxation. Author of this thesis have contacted around 10 poker
rooms with questions regarding number of Polish accounts, active players and
never received the answer.
Happily, there are outside services, which collect nearly all of hands played
on few biggest poker rooms. Collected hands include: nationalities of players
taking part in hand, size of the pot, rake taken. Every hand is available to
view through their service, so it is convenient and reliable. For my
calculations I used biggest online poker database PokerTableRatings.com.
Looking at the Figure 1, in year 2010 PartyPoker had 6.12% of global market
share. The rest of the global market share stand for 93.88% after deducting
PartyPoker. 01.2013 - 11.2013 there were 10.115 Polish players, which
played on PartyPoker cash game tables.
1)
6,12% 10,115
[PartyPoker 2010 [Polish players on
-
market share] PartyPoker in 2013]
100%
- ?
[total market share]
26
6,12% 10,115
[PartyPoker 2010 - [Polish players on
market share] PartyPoker in 2013]
100% - 165,278
[total market share] [Polish players in 2013]
In 2013 there were around 165,278 players from Poland, which still can be
underestimated as it stand only for around 0.668% of Polish adults in
productive age, data from 2011 16. On the other side, number of players can be
right but Polish player might play larger hand number than average player
worldwide.
,,We find that the worldwide 6 million players paid 3.61 billion US$ rake to
the operators in 2010.‖ 17
2)
3,610,000,000$
6,000,000 [total rake paid to the
-
[total players] operators in 2010]
165,278
- ?
[Polish players]
3,610,000,000$
6,000,000 [total rake paid to the
-
[total players] operators in 2010]
99,442,262$
165,278
- [Polish players rake paid
[Polish players]
to the operators in 2010]
16
http://pl.wikipedia.org/wiki/Ludność_Polski#Doro.C5.9Bli [accessed August 10th 2014]
17
I. Fiedler, The Market for Online Poker, Available at:
https://www.academia.edu/724198/The_Market_for_Online_Poker [accessed August 10th
2014]
27
These do not include Polish players: playing outside of Poland; using other
country VPN, having country hidden in PokerStars software, having country
changed in PokerStars software etc.
28
Bibliography
Harroch R. D., Krieger L., Poker for Dummies. New Jersey 2000, p. 12
Kurzępa B., Kotowski W., Tyt. I dz. II roz. 9 art. 107, in: Kodeks karny
skarbowy. Komentarz, Kurzępa B., Kotowski W. (eds), Warsaw 2007.
Stradbrooke S., Experts: Online Poker “by no means relevant for money
laundering”, available at: http://calvinayre.com/2013/04/06/business/exp erts-
online-poker-by-no-means-relevant-for-money-laundering/ [accessed August
10th 2014]
Wilk L., Financial penalties in the law on gambling , in: Prokuratura i Prawo
2011, No. 1, p 156
29
Internet
List of figures
List of tables
Table 2 Regulations on Texas Hold‘em Online Poker over the world ........... 20
30
31