Introduction
The ECJ’s well-established case law on fiscal neutrality is a key factor in understanding the VAT treatment of online gambling services. This principle, which stipulates that similar goods and services in direct competition should not be subjected to different VAT treatments, has significant implications. Its importance was amplified in 2015 when electronically supplied services became taxable in the consumer’s home Member State for services rendered to non-taxable persons within the EU. This context is crucial for comprehending the VAT treatment of online gambling services.
As a result, providers of electronic services are now navigating the labyrinthine VAT regulations in each Member State where they operate. In the realm of gambling, this intricate web of rules becomes even more complex due to Article 135 (1)(i) of the VAT Directive. This article carves out exemptions for betting, lotteries, and other forms of gambling, all governed by the distinct conditions and restrictions imposed by each Member State, adding layers of complexity to an already challenging landscape.
This can lead to significant disparities in the VAT treatment of similar gambling activities across various Member States. Particularly within the realm of online gambling, this disparity means that services rendered in the digital sphere, considered electronically supplied, may encounter distinct VAT regimes when compared with their offline counterparts.
Previous ECJ Case Law on Fiscal Neutrality and Gambling
In Case C-58/09, Leo-Libera[1], a German enterprise operating gaming halls with gaming machines, opposed a decision by the German Tax Authorities to refuse to exempt their services from VAT.
The company asserted that, under Article 135 (1)(i) of the VAT Directive, the exemption from VAT should encompass not only betting and lotteries but other forms of gambling, as suggested by the article’s phrasing. Leo-Libera argued that this restrictive VAT treatment breached the principle of fiscal neutrality, placing the company at a competitive disadvantage compared to public casinos. The matter brought before the ECJ was whether Article 135(1)(i) permits Member States to exempt certain forms of gambling from VAT selectively.
The ECJ ruled that the principle of fiscal neutrality does not forbid disparate VAT treatments delineated by national statutes for various forms of gambling so long as they do not compete. In this case, the national legislation exempted gambling in public casinos from VAT while not extending the same exemption to gaming machines. The ECJ did not clarify the criteria for establishing competition between different gambling types. Nonetheless, the court concluded that gambling activities subjected to VAT under national legislation did not compete with those exempt from VAT.
In the joined Cases C-259/10 and C-260/10, Rank Group[2], a VAT group managing bingo establishments and casinos across the UK, where customers could play mechanised cash bingo and slot machines, submitted claims to reclaim VAT levied on their services. Their contention lay in the divergent VAT treatments applied to distinct types of mechanised cash bingo and slot machines, a breach they argued against the backdrop of fiscal neutrality, citing the indistinguishable nature of their services from the consumer’s standpoint.
Within this judicial ruling, the ECJ addressed the question of whether disparate VAT treatments for akin services, aligned with the consumer’s perspective and fulfilling identical needs, transgress the tenets of fiscal neutrality or if, as per the precedent set by Leo-Libera, competition between services was also requisite. At this juncture, the ECJ decreed that if two supplies share a likeness, they are inherently engaged in competition. Thus, tangible competition is not an auxiliary prerequisite for substantiating a breach of fiscal neutrality. Discrepant VAT treatments for analogous services gauged from the consumer’s perspective suffice to contradict the principles of fiscal neutrality.
Moreover, the ECJ addressed the query of whether the VAT treatment of akin slot machines should be based on their characteristics and the interaction between the player and the machine. Herein, the ECJ articulated that services are deemed similar if they possess akin attributes and applications, and any disparities do not markedly sway the average consumer’s decision-making process. Minor structural disparities cannot warrant disparate VAT treatments if the services belong to the same category. To assess the similarity of differentially taxed games of chance, the ECJ stated that one must adopt the vantage point of the average consumer, factoring in all elements that may influence their choice, including rewards and odds of success.
The ECJ’s rulings underscore that the propriety of disparate service taxation, in a manner antithetical to fiscal neutrality, hinges on the average consumer’s perception of their comparability and utility. Nevertheless, the precise definition of the “average consumer”—whether it denotes a generic consumer or one specifically within the realm of gambling—and whether this definition fluctuates across Member States remained unclarified.
Chaudfontaine Loisirs (C-73/23)[3] / Casino de Spa and Others (C-741/22)[4]
Overview of the cases and legal framework of the disputes
In 2016, Belgium witnessed substantial alterations to its national legislation concerning online gambling, heralding a pivotal moment in digital gaming. These reforms upheld exemptions for traditional forms of gambling, such as lotteries, while excluding electronically provided services, namely, online gambling, collectively known as analogue gambling.
However, the dawn of 2018 brought about a legal upheaval when the Belgian Constitutional Court invalidated these provisions, citing breaches of national regulatory competencies. Despite this legal overturn, the taxes disbursed during the interim period from 2016 to 2018 remained intact, thereby denying taxpayers any entitlement to reimbursement for the VAT remitted on online gambling transactions during that period.
At the heart of the legal entanglements analysed in the present Article lies a profound exploration of the intricate relationship between the principle of fiscal neutrality and the VAT treatment accorded to online gambling services. The applicants contest the disparate VAT treatment between gambling services tendered by public entities, enjoying VAT exemptions, and those proffered by diverse private enterprises subject to VAT obligations.
The applicants contend that the services dispensed by these disparate entities are comparable and engage in direct competition with one another. Moreover, in the case of Casino de Spa and Others (C-741/22), the applicants have taken an additional legal stride, challenging the exemption of other gambling providers as constituting unlawful State aid.
Conversely, the Belgian government staunchly sustains that the services provided by public entities bear no semblance to the online gambling offerings of private enterprises. Thus, it contends that the hallowed principle of fiscal neutrality remains inviolate. Central to its argument is the nuanced categorisation of lotteries vis-à-vis other forms of gambling under national law, underlining the distinctive legal status accorded to the public entity’s operations within Belgium.
Furthermore, the Belgian government underscores the latitude granted to Member States in exercising discretionary authority to exempt specific gambling categories from VAT, further reinforcing its stance.
Opinions Delivered by Advocate General Kokott
Setting the tone with quotes from George Bernard Shaw and Owen Feltham (“In gambling the many must lose in order that the few may win.”/“By gaming, we lose both our time and treasure – two things most precious [in] life…”), the Advocate General cast an unyielding shadow over the hopeful prospects of Casino de Spa and Chaudfontaine, signalling the journey ahead.
- Direct Effect of the Exemption
The AG delved into the intricate question of whether the taxpayers could rightfully invoke the direct effect of the exemption enshrined in Article 135(1)(i) of the VAT Directive. In a brief yet profound analysis, the Advocate General opined that the gambling exemption delineated in the VAT Directive lacks the requisite precision and unconditional characteristics to bestow direct effect upon Member States. Highlighting the ambiguity inherent in the provision, the AG underscored its failure to unequivocally impose obligations on Member States and its allowance for imposing conditions and limitations.
Drawing upon jurisprudential precedents such as Golfclub Schloss Igling (C-488/18)[5] and British Film Institute (C-592/15)[6], the Advocate General elucidated the conditions under which provisions of the Directive could be invoked against Member States. However, the AG concluded that Article 135(1)(i) of the VAT Directive fell short of meeting these criteria, as it neither commanded unconditional compliance nor provided sufficient precision.
With a respectful nod to the Leo-Libera (C-58/09) ruling, the AG underscored the discretionary power vested in Member States to delineate conditions and limitations on VAT exemptions for various forms of gambling. This discretionary authority absolves Member States from the obligation to offer a blanket exemption for all gambling services.
Furthermore, the AG accentuated that the VAT exemption for gambling is rooted in pragmatic considerations rather than stringent evaluations under EU law. Historical in its genesis, this exemption emerged as a compromise among the founding Member States, each harbouring distinct gambling laws. Thus, the allowance for exemptions, subject to Member States’ conditions and limitations, facilitated the preservation of national regulatory frameworks in gambling.
- Infringement of the Principle of Fiscal Neutrality
Secondly, the AG explored the intricate obligation of Member States to uphold the hallowed tenet of fiscal neutrality while exercising their discretionary powers. This principle, a cornerstone of fiscal jurisprudence, stands as a bulwark against differential VAT treatment for goods or services in direct competition unless such divergence finds justification in the annals of legality. Fiscal neutrality is thus transgressed when goods or services, perceived as indistinguishable or interchangeable by the discerning eye of the average consumer, are subjected to disparate tax regimes, fostering an environment of distortion in competition.
The AG diverged from the taxpayers’ arguments, concluding that the variance in VAT treatment between online gambling (excluding lotteries) and its analogue gambling, or online lotteries, was not merely a deviation—these realities differed, so the distinct VAT treatment was legitimate.
This divergence, supported by the Commission and Belgium, found its roots in the intrinsic disparities between online and analogue gambling realms. The AG expounded that online lotteries stand apart from other gambling forms because of their fixed stakes and chance-based outcomes without a gaming element inherent in different online gambling forms, replete with repetitive player engagements and immediate outcomes.
Thus, in her Opinion the AG unfurled a compelling argument: even if the hallowed Article 135 (1) (i) of the VAT Directive were to wield direct effect, Belgium’s differentiation between electronically provided gambling vis-a-vis non-electronically provided gambling, as well as between electronically provided gambling and electronically carried out lotteries, would emerge unscathed from the scrutiny of legal neutrality.
AG Kokott underlined that the differentiation in Belgian VAT law, between online gambling and other forms of gambling, as well as between online lotteries and online gambling, stood as a bastion of objectivity and non-discrimination.
- State Aid Considerations
In the Casino de Spa and Others (C-741/22) Case, taxpayers alleged that the exemption granted to other gambling providers constituted unlawful State aid. However, the Advocate General’s pronouncement delineates a nuanced perspective, deeming the queries pertaining to the presence of aid as legally untenable.
Drawing from a jurisprudential reservoir, the AG underscores a fundamental precept: those subject to taxation cannot wield the exemption of their counterparts as a shield against their tax obligations. Moreover, the impartial burden imposed by a general tax like VAT militates against claims of unequal treatment, firmly grounding such challenges outside the purview of State aid regulations.
While acknowledging the imperative of redressing unlawfully granted aid, the Advocate General highlights a crucial distinction: the VAT exemption for gambling services, far from constituting an advantage for providers, redounds to the benefit of consumers. Within this legal framework, the absence of any preferential treatment discernible from a substantive standpoint precludes the classification of aid as proscribed by Article 107(1) TFEU.
In VAT law, the AG discerns a rational basis for differentiation among various forms of gambling, demarcating such distinctions as objectively justified and devoid of discriminatory intent. Thus, the absence of selective advantage obviates the spectre of illegitimate aid, thereby reinforcing the principle of fiscal neutrality within the field of taxation.
In summary, the AG’s opinion underscores a vital tenet: while regulations governing prohibited State aid cast a discerning eye on disparate treatment, such considerations find scant resonance in proceedings concerning individual tax liabilities. Hence, those entrusted with tax obligations cannot invoke allegations of illicit aid to forestall their fiscal responsibilities.
Charting the Course: The Road Ahead
The forthcoming rulings in these cases hold immense significance for the VAT treatment of online gambling services. Should the ECJ align with the thorough analysis put forth by the AG, it would allow for distinct VAT treatment between land-based and online gaming, as well as between online games and lotteries. Such an outcome would effectively preclude the direct application of the EU Directive in this domain.
Furthermore, should the ECJ concur with the AG’s stance, casinos subject to VAT would find themselves unable to invoke the exemption enjoyed by their public counterparts as constituting state aid. Instead, it would be recognised as a lawful implementation of EU regulations, devoid of any semblance of state aid. This delineation is pivotal, especially considering that the revenues generated from VAT are not earmarked to benefit specific entities, unlike other forms of taxation.
One thing is sure – these rulings promise to bring much-needed clarity to the intricate tax dynamics between online and offline gambling. By elucidating the application of Article 135(1)(i) of the VAT Directive, they pave the way for a more coherent and effective implementation of VAT regulations in the realm of gambling.
In any case, the thought lingers: “The highest form of wisdom is to know when to play and when to stay away”.
Dalila Mendes Leal
May 2024
[1]https://curia.europa.eu/juris/document/document.jsf;jsessionid=30D3FD929148B2333B7778298880A858?text=&docid=82802&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=2909155
[2]https://curia.europa.eu/juris/document/document.jsf?text=&docid=113588&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=2909305
[3]https://curia.europa.eu/juris/document/document.jsf?text=&docid=285206&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=2909896
[4]https://curia.europa.eu/juris/document/document.jsf;jsessionid=B74CC8C5A02D40A41CA3AD1057A97745?text=&docid=285203&pageIndex=0&doclang=en&mode=req&dir=&occ=first&part=1&cid=3082511
[5]https://curia.europa.eu/juris/document/document.jsf?text=&docid=235348&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=2911787
[6]https://curia.europa.eu/juris/document/document.jsf?text=&docid=187864&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=2911963