Flashback on ECJ Cases – C-464/10 (Henfling and Others) – VAT exemption for betting also applies to engaged brokers

On July 14, 2011, the ECJ issued its decision in the case C-464/10 (Henfling and Others).

Context: Taxation – Sixth VAT Directive – Article 6(4) – Exemption – Article 13(B)(f) – Gambling – Services provided by a commission agent ‘buraliste’ acting in his own name but on behalf of a principal operating a business of taking bets

Article in the EU VAT Directive

Artcile 6(4) and 13(B)(f) of the Sixth VAT Directive (Articles 26 and 135(1)(i) of the EU VAT Directive 2006/112/EC).

Article 26 (Taxable transaction – Supply of Services)
1. Each of the following transactions shall be treated as a supply of services for consideration:
(a) the use of goods forming part of the assets of a business for the private use of a taxable person or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deductible;
(b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.
2. Member States may derogate from paragraph 1, provided that such derogation does not lead to distortion of competition.

Article 135 (Exemption)
1. Member States shall exempt the following transactions:

(i) betting, lotteries and other forms of gambling, subject to the conditions and limitations laid down by each Member State;

Facts

TFB, which was declared insolvent on 27 October 2008, is a public limited company registered for VAT in Belgium whose business comprises taking bets, in particular, on horse races in Belgium and in other States.
In the course of its business, TFB uses a network of local agents, called ‘buralistes’, situated throughout the territory of the Kingdom of Belgium. Those ‘buralistes’ are responsible for collecting betters’ stakes on horse races or other sporting events, registering the bets, issuing betting slips or tickets for betters and paying out winnings.
Each ‘buraliste’ is linked to TFB by an agreement called a ‘commission contract’.
Under that contract, TFB is the owner of the business that the ‘buraliste’ is responsible for managing. TFB makes available to the ‘buralistes’ premises with the necessary energy supplies, is responsible for property insurance and makes sure that the sign is put up and kept in good working order.
That contract also provides that TFB is to provide the ‘buraliste’ with the IT equipment to be used to record all bets made and winnings paid. The equipment and documents handed over by TFB to the ‘buraliste’ are provided free of charge and remain the exclusive property of TFB. The ‘buraliste’ undertakes to use the equipment entrusted to him by TFB with all due care and to inform TFB of any anomaly appearing in the use of that equipment, its repairs and maintenance being carried out by TFB at its own expense.
Furthermore, the ‘buraliste’ is obliged, under the ‘commission contract’ entered into with TFB, to observe the rules concerning taking bets, in particular, their recording, accounting and payment. The ‘buraliste’ undertakes to ensure the due operation of his agency and the opening of the agency in line with events linked to TFB’s activities and goods. The ‘buraliste’, however, has the right to decide freely how to organise his agency and is free to engage staff in order to best meet his obligations.
TFB authorises the ‘buraliste’ to receive all types of bets for which it is lawfully authorised, either under statute or as an agent, and allows him to carry out any other business provided that it is not contrary to the Law on betting outlets (loi sur les agences hippiques) and is not carried out on behalf of a direct competitor of TFB.
According to the general provisions of TFB’s regulations, the agency operator, who alone is authorised to register a bet, may always refuse to take a bet, in whole or in part, without being obliged to give reasons for his refusal. Furthermore, a winning better can claim his winnings only from the ‘buraliste’ with whom he made the bet.
The ‘buraliste’ is paid by means of commission, pegged to a percentage of the stakes placed on registered bets after deducting the amount of payments made. That commission is calculated and settled each month separately from the official operation of bets. The ‘buraliste’ does not address any invoices to TFB for charging his commission.
The betting slips issued by a ‘buraliste’ to gamblers in order to give the bet a physical form have, in front, at the top, the name of the ‘buraliste’, his registered business number and his VAT number. On the front of the betting slip is information written at the side, namely, at the bottom of the betting slips the wording ‘Belgische Tiercé’ and ‘Tiercé belge’ and at the top of them ‘Tiercé Franco Belge’. On the back of the betting slips the following text appears: ‘By participating, the better acknowledges that he has understood and agreed to the terms of the S.C. P.M.U. belge, S.A. Tiercé Franco-belge and Bingoal regulations.’
During an inspection, started in the month of July 2000, the Belgian tax authorities found that the commission made by the ‘buralistes’ between 1 January 1997 and 31 December 2000 had not been subject to VAT. Taking the view that the ‘buralistes’ worked in the name of TFB and that, therefore, their business had to be subject to VAT, in November 2001 those authorities sent TFB a VAT demand, increased by fines and late interest payments, for VAT due on that commission.
TFB brought an action before the tribunal de première instance of Liège and sought a ruling that VAT was not payable on the contested commission, claiming that, for the application of the VAT legislation, the ‘buralistes’ had to be considered to be commission agents acting in the context of a supply of services exempt from VAT.
By judgment of 20 September 2004, that court granted TFB’s application. On appeal by the Belgian State, the cour d’appel of Liège upheld that judgment in its entirety in a judgment of 5 October 2005. The Cour de cassation quashed that judgment and referred the case back to the referring court.
That court first examined the contract linking TFB with the ‘buralistes’ and held that it followed from the combination of the intrinsic and extrinsic elements of that contract that the ‘buralistes’ had received from TFB the contractual task of collecting and recording bets under a commission contract and not under an agency contract. Furthermore, that court noted that Article 13(2) of the VAT Code removes all interest in the question whether the intermediary acted as an agent rather than a commission agent. It concluded that the ‘buralistes’ acted directly in their own name, under a commission contract, supplying services consisting of the recording of bets and the payment of winnings on behalf of the company TFB.

Questions

Must Articles 6(4) and 13(B)(f), of the Sixth Directive, be interpreted as precluding a tax exemption in respect of services supplied by a commission agent acting in its own name, but on behalf of a principal who organises supply of services referred to in Article 13(B)(f) …?

AG Opinion

None

Decision

Articles 6(4) and 13(B)(f) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, must be interpreted as meaning that, in so far as an economic operator acts in his own name, but on behalf of an undertaking carrying on a bet-taking business, in the collection of bets covered by the exemption from value added tax under Article 13(B)(f), that latter undertaking is to be considered, in accordance with Article 6(4), to provide that operator with a supply of bets coming under that exemption.

Summary

Services performed by a commission agent (independent operator of a betting office) acting in his own name but on behalf of the principal who organizes betting as an activity – Gambling

Articles 6(4) and 13B(f) of the Sixth Directive must be interpreted as meaning that, in so far as an economic operator acting in his own name but on behalf of an undertaking which organizes betting as an activity acts as an intermediary in the collection of bets which are exempt from VAT under Article 13(B)(f), the latter undertaking, pursuant to Article 6(4), is deemed to be placing a bet covered by that exemption on behalf of that operator.

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