Flashback on ECJ Cases – C-3/09 (Erotic Center) – Individual cabin for watching movies on demand are not considered ”granting cinema access”

On March 18, 2010, the ECJ issued its decision in the case C-3/09 (Erotic Center).

Context: Sixth VAT Directive – Article 12(3)(a) – Annex H – Reduced rate of VAT – Concept of ‘admissions to a cinema’ – Individual cubicles for watching films on demand

Article in the EU VAT Directive

Article 12(3)(a) of the Sixth VAT Directive

Article 96 (Standard VAT Rate)
Member States shall apply a standard rate of VAT, which shall be fixed by each Member State as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services.

Article 98 (reduced VAT Rate)
1. Member States may apply a maximum of two reduced rates.
The reduced rates shall be fixed as a percentage of the taxable amount, which shall not be less than 5 % and shall apply only to the supplies of goods and services listed in Annex III.
Member States may apply the reduced rates to supplies of goods or services covered in a maximum of 24 points in Annex III.

Facts

On 15 September 2004, the tax authorities carried out an audit on the premises of E. Center concerning the application of the provisions relating to VAT for the period from 1 January until 30 June 2004. Following that audit, those authorities drew up an official report on 9 November 2004 imposing a revised tax assessment and fine on E. Center on the ground that it had incorrectly applied the reduced rate of VAT of 6%, instead of the standard rate of 21%, to the income received from the provision of cubicles for watching films. The amounts of EUR 48 454.36 and EUR 4 840 were thus charged to E. Center, corresponding respectively to the VAT which was thus allegedly evaded and to a fine.
After a writ of execution for those amounts had been served on E. Center on 24 December 2004, the latter lodged an application dated 22 March 2005 with the Rechtbank van eerste aanleg te Brugge (Court of First Instance, Bruges) seeking to have that writ of execution set aside. As that application was dismissed by judgment of 10 September 2007, E. Center brought an appeal against that decision before the hof van beroep te Gent (Court of Appeal, Ghent).
Before that court, E. Center claims that the cubicles for watching films at issue are covered by the category ‘establishment for culture, sports or entertainment’ as referred to in Heading XXVIII of Table A in the annex to Royal Decree No 20, because, in particular, such cubicles must be classified as a ‘cinema’ as referred to in Category 7 in Annex H to the Sixth Directive, as has moreover already been held by the Dutch courts. According to E. Center, the number of seats, the type of film shown or the method of projection used are, in particular, irrelevant for the purposes of such a classification.
The Belgian Government, on the other hand, is of the opinion that the services provided in those cubicles are covered by the concept of ‘automated recreation devices’ as referred to in Heading XXVIII, since the films are started by inserting coins into a device with the possibility of switching from one film to another. In the opinion of the Belgian Government, such cubicles cannot be classified as a ‘cinema’ since they are not spaces in which a group of people can together watch the same film, started without any intervention by the audience, which has paid for admission in advance.
The referring court argues that, by adopting Heading XXVIII of Table A in the annex to Royal Decree No 20, the Belgian legislator made use of the possibility envisaged by Article 12(3)(a) of the Sixth Directive in conjunction with Category 7 in Annex H thereto, with the result that Heading XXVIII must be interpreted as covering cinemas within the meaning of Category 7. That court considers that the need to interpret the national legislation in a way which is consistent with the Sixth Directive and with the uniform concepts specific thereto implies that, if the cubicles at issue must be considered to be cinemas within the meaning of that directive, they cannot be classified as automated recreation devices as referred to in Heading XXVIII and the reduced rate of 6% would have to be applied to them.

Questions

Should a cubicle consisting of a lockable space where there is room for only one person and where this person can watch films on a television screen for payment, where this person personally starts the film projection by inserting a coin and has a choice of different films, and during the time paid for can continually modify his choice of projected films, be regarded as a “cinema” as referred to in the Sixth … Council Directive …, Annex H, Category 7 …?

AG Opinion

None

Decision

The concept of admissions to a cinema referred to in the first paragraph of Category 7 in Annex H to 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, as amended by Council Directive 2001/4/EC of 19 January 2001, must be interpreted as meaning that it does not cover the payment made by a customer so as to be able to watch on his own one or more films, or extracts from films, in private cubicles such as those in issue in the main proceedings.

Summary

Reduced VAT rate – Concept of “granting cinema access” – Individual cabin for watching movies on demand

The concept of granting access to a cinema in Annex H, Category 7, first paragraph, to the Sixth Directive must be interpreted as not covering payment by a consumer for the individual viewing of one or more films or further film fragments in an enclosed space such as the cabins at issue in the main proceedings.

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