Flashback on ECJ Cases – C-377/11 (International Bingo Technology) – The amount that a bingo organizer is legally required to pay out in prizes is not part of the turnover/this part does not count towards the denominator of the pro-rata violation

On July 19, 2012, the ECJ issued its decision in the case C-377/11 (International Bingo Technology).

Context: Sixth VAT Directive — Articles 11A(1)(a), 17(5) and 19(1) — Organisation of games of bingo — Legal obligation to use part of the card price to pay winnings to players — Calculation of the basis of assessment

Article in the EU VAT Directive

Articles 11A (1) (a), 17(5), 19(1) of the Sixth VAT Directive (Articles 73, 173, 174(1), 175(1) of the EU VAT Directive 2006/112/EC).

Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Article 173 (Proportional deduction)
1. In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible.
The deductible proportion shall be determined, in accordance with Articles 174 and 175, for all the transactions carried out by the taxable person.
2. Member States may take the following measures:
(a) authorise the taxable person to determine a proportion for each sector of his business, provided that separate accounts are kept for each sector;
(b) require the taxable person to determine a proportion for each sector of his business and to keep separate accounts for each sector;
(c) authorise or require the taxable person to make the deduction on the basis of the use made of all or part of the goods and services;
(d) authorise or require the taxable person to make the deduction in accordance with the rule laid down in the first subparagraph of paragraph 1, in respect of all goods and services used for all transactions referred to therein;
(e) provide that, where the VAT which is not deductible by the taxable person is insignificant, it is to be treated as nil.

Article 174
1. The deductible proportion shall be made up of a fraction comprising the following amounts:
(a) as numerator, the total amount, exclusive of VAT, of turnover per year attributable to transactions in respect of which VAT is deductible pursuant to Articles 168 and 169;
(b) as denominator, the total amount, exclusive of VAT, of turnover per year attributable to transactions included in the numerator and to transactions in respect of which VAT is not deductible.
Member States may include in the denominator the amount of subsidies, other than those directly linked to the price of supplies of goods or services referred to in Article 73.

Article 175
1. The deductible proportion shall be determined on an annual basis, fixed as a percentage and rounded up to a figure not exceeding the next whole number.

Facts

International Bingo is a company organising bingo games. It is subject to VAT, but exempt from that tax in respect of the turnover relating to the organisation of those games.
However, International Bingo carries out other activities in respect of which it is not VAT-exempt. Those activities include, in particular, the collection and payment of the ‘bingo tax’, which corresponds to a portion of the card price, which the organisers collect from the players and deposit with the competent tax authority. In consideration of that activity, the organisers receive a collection bonus of 10% of the amount of that tax. The amount of that bonus, which is subject to VAT, constitutes the taxable basis for the calculation of the VAT due from the organisers for their supply of services.
Since, in the rooms used for bingo games, the organisers carry out other activities which are not exempt from VAT, such as the operation of a bar or a restaurant, they are subject to the proportion rule for determining the deductible VAT under Article 17(5) of the Sixth Directive.
For the purposes of calculating that proportion, International Bingo has deducted from its turnover the amount of winnings which it had to distribute to the winners pursuant to the Law on VAT, which amount corresponds to a fixed percentage of the bingo card price. The Agencia Estatal de la Administración Tributaria (State Fiscal Administration Agency; ‘the Agencia’) does not share that view. It has decided that the amount of winnings paid to the winners should be included in the amount of turnover used as the basis for calculating the proportion.
Since the Tribunal Económico-Administrativo Regional de Cataluña dismissed the action brought against that decision of the Agencia by International Bingo, the latter appealed to the Tribunal Superior de Justicia de Cataluña (High Court of Justice of Catalonia), submitting that the judgment at first instance was contrary to the Sixth Directive as interpreted by the Court of Justice.
In the view of the national court, in order to rule on the dispute before it, it must be determined what constitutes the ‘consideration actually received’ by International Bingo for organising the game. In that regard, that court notes that some elements of the judgments in Case C‑38/93 Glawe [1994] ECR I‑1679 and Case C‑498/99 Town & County Factors [2002] ECR I‑7173 allow the view to be taken that an organiser of bingo games, such as that in question in the case before it, does not genuinely have at its disposal the portion of the card price which is intended to finance the winnings to be paid to winners.
Firstly, the amounts which correspond to the winnings are predetermined by legislation, which provides that the amount to be distributed in winnings in each game or draw shall consist of 69% of the face value of all the cards sold.
Furthermore, since the percentage of the card price which is repaid in the form of winnings is predetermined by legislation, there are no uncertainties in that regard. The amount paid as winnings in each game depends only on the number of cards sold and can be established by a simple arithmetical calculation.
Finally, since the percentage of the card price which corresponds to the winnings to be distributed to winners is at the disposal of the organiser of the bingo game only for the time which elapses between the beginning of the game and the end of the game, that organiser can be regarded as the mere temporary custodian of the winnings.
The Tribunal Superior de Justicia de Cataluña states that the solution adopted by the Spanish courts as regards calculation of the basis of assessment in respect of a service such as that at issue in the dispute before it and the solution adopted by the courts of other Member States are diametrically opposite. Accordingly, it is necessary to ascertain whether the provisions of the Sixth Directive on the calculation of the proportion deductible are intended to harmonise the rules for that calculation.
That court has, furthermore, set out a number of points which, in its view, must be taken into account in the context of the present reference for a preliminary ruling. Thus, it states that:

– in the present case, within the price which players pay for each bingo card, it is possible to differentiate, legally and financially, between the amount allocated to winnings and the amount allocated to other items. That is the case of the portion used to pay the bingo tax and the portion constituting the consideration for the tax collection service supplied by the organiser of the game. In the light of that distinction, there can be no doubt that the portion of the price intended to pay winnings cannot be regarded as payment for the services supplied by the organiser;

– the organiser of the game is unable to pass on financially to the winners the VAT which is charged on the amounts allocated to winnings. Thus, there can be no transfer of the economic burden of that tax. The distortion of the neutrality of the VAT system arising therefrom could be mitigated if the winnings distributed were not included in the basis of assessment.

Questions

1. For the purposes of constituting the chargeable event giving rise to the VAT, does the fact that bingo players pay the portion of the card price corresponding to the winnings amount to genuine consumption of goods and services?

2. For the purposes of the rules governing the denominator used in the calculation of the percentage of the deductible proportion, is Article 11A(1)(a), in conjunction with Articles 17(5) and 19(1), of the Sixth Directive to be interpreted as requiring such a degree of harmonisation that it precludes the adoption in the Member States of different solutions in legislation or case‑law with regard to the inclusion in the taxable amount for VAT of the portion of the card price allocated to the payment of winnings?

3. For the purposes of constituting the denominator used in the calculation of the percentage of the deductible proportion, is Article 11A(1)(a), in conjunction with Articles 17(5) and 19(1), of the Sixth Directive to be interpreted as precluding national case‑law which, in the case of the game of bingo, includes in the taxable amount for VAT the amount corresponding to winnings that is paid by players through the purchase of cards?

AG Opinion

None

Decision

1) Article 11A (1) (a) of the Sixth Council Directive (77/388 / EEC) of 17 May 1977 on the approximation of the laws of the Member States relating to turnover taxes – Common system of value added tax : uniform basis, as amended by Council Directive 98/80 / EC of 12 October 1998, must be interpreted as meaning that, in the case of the sale of bingo cards such as that at issue in the main proceedings, the portion of the price of those cards predetermined by law which is intended for the payment of the prize money to the players, is not included in the taxable amount for value added tax.

(2) Articles 17 (5) and 19 (1) of the Sixth Directive (77/388), as amended by Directive 98/80, must be interpreted as meaning that Member States may not provide that for the pro rata calculation of the value added tax deduction, the portion of the sale price of the bingo cards that is to be paid out to players as prize money, determined in advance by law, is part of the turnover to be included in the denominator of the bingo cards referred to in Article 19, paragraph 1, the fraction referred to.

Summary

When bingo cards are sold, the part of the price of these cards determined in advance by law that is intended for the distribution of the prize money to the players, is not included in the taxable amount for VAT.

Member States may not provide that, for the pro rata calculation of the VAT deduction, the part of the sales price of bingo cards determined by law to be paid out to players as prize money is part of the turnover to be the denominator.

Source: