Spanish Tax Authorities Pursuing Poker Players for Unreported Winnings

The Spanish taxation authorities appear to be cracking down on people who have failed to pay taxes on their poker winnings, with this being true not just of Spanish citizens but also of individuals residing in other parts of Europe who have earned substantial amounts in the past while visiting Spain. Officials are digging up records of poker money collected several years ago and then presenting the winners with hefty tax bills.

The Case of Hossein Ensan

The current wave of Spanish online poker tax woes was brought to the attention of the player community by Hossein Ensan. In 2014, he attended the European Poker Tour’s Barcelona festival where he took third place in the Main Event. As a result of a final table deal, Ensan walked away with a payday of €652,667.

After returning home to Germany, Hossein Ensan consulted with the local tax office and paid what they said he owed. However, just recently, he received a letter from the taxation bureau of the Catalonia region of Spain. They claimed that he owed €214,643.67 in back taxes as well as €20,790.00 in interest and penalties for a total bill of €235,433.67: equal to more than 36 percent of the amount he cashed for.

Because Ensan had already paid taxes on his tournament winnings in Germany, this additional request from Spain represents a form of double taxation. In order to prevent these types of situations wherein people may owe taxes in multiple jurisdictions on the same income, countries usually enter into reciprocal tax agreements with each other.

Under the terms of these arrangements, income tax paid in one country is credited against tax liability in another. Spain and Germany do indeed have such a treaty with each other in effect, but gambling income is considered a special category and is exempt from the protections extended to citizens of both countries.

The fact that Spain is dredging up old tax debts and trying to collect on them years later is a great inconvenience to those targeted. They may have already spent most of the money and could possibly have been lulled into a false sense of security by having already paid the entirety of what they thought they owed to their countries of residence. Media reports confirm that those under the scrutiny of the Spanish tax authorities are not confined to just Germans but also citizens of France, Italy and several other nations.

Spanish Tax Rules Used to Be Even Worse

As draconian as the current Spanish gambling tax regulations are, they used to be even more punitive. Before the law was changed in 2012, poker enthusiasts had to pay taxes on every pot they won, and they weren’t able to deduct losses from the amount they earned. So, for example, if someone played a cash game session wherein he won five pots for $50 apiece but then lost back all his profits, he would still have to fork over the taxes on his $250 “profit.” The tax rate was a massive 47 percent. At least today, players can deduct from gambling winnings the losses they incurred during the same tax reporting period although they still cannot apply losses toward wins booked in the past or future.

Chess Grandmaster Hounded

In going after poker players for the taxes they owe on old wins, Spain isn’t doing anything new. The country has already engaged in the same tactics before, like it did with chess grandmaster Francisco Vallejo Pons who lives in Es Castell, Menorca, Spain. Way back in 2011, Pons, who doesn’t consider himself to really be a gambler in the traditional sense, elected to play some online poker purely from the standpoint of a recreational poker fan.

“I would say that I was not even a big fan. I read some books at the time, but I do not fit at all in the profile of a ‘player.’ I thought I could win, and when I realized it was not like that, I left it. It is a very repetitive game and, unlike chess, you really do not enjoy playing a lot,” commented Pons on his experience playing the game.

Nevertheless, he ended up winning around €1 million that year, although once buy-ins are included, the money he won came to significantly less. In fact, Pons described it as being “a few thousand,” and moreover, he kept on playing until he lost all the funds in his account, then stopped.

Imagine Fancisco’s surprise when he was contacted by the Spanish tax office in 2016 and told he owed more than €500,000 on his online poker “winnings”! He was a victim of the old Spanish laws that directed that every winning pot was a taxable event without the possibility of deducting losing hands.

“More than half a million euros because I played poker and I lost. It seems a macabre joke, but it is not, from that moment begins a snowball that crushes you,” explained a devastated Pons.

After having all of his savings seized, Francisco Vallejo Pons began to try to negotiate with officials. However, these meetings proved fruitless, and the matter was still hanging over his head two years later. In March 2018, Pons withdrew from the European Individual Championship chess event in Batumi, Georgia after the fifth round of play. There was a huge $1.6 million first place prize awaiting its eventual winner, but Pons said that worry and stress about his tax circumstances was the reason for his withdrawing from the competition.

Spain Making a Bad Name for Itself

The country is guilty of committing a major injustice by pursuing past cases and attempting to tax those players unfortunate enough to have played poker in Spain before the law changed in 2012. Unless fairer retroactive gambling taxation rules are implemented in Spain, the country risks becoming a poker pariah state. There are plenty of locations, in Europe and around the world, that offer live and online poker and do not have such an oppressive tax climate regarding gambling winnings. In some jurisdictions, notably the United Kingdom, gambling wins aren’t even taxed once, never mind twice. The brick-and-mortar poker scene in Spain, including the European Poker Tour’s Barcelona events, could become consigned to oblivion if the current unfavorable tax situation continues.