Flashback on ECJ cases C-453/02 (Linneweber) & C-462/02 (Akritidis) – VAT exemption for gambling also applies in the case of unauthorized gambling

On February 17, 2005, the ECJ issued its decision in the joined cases C-453/02 (Linneweber) & C-462/02 (Akritidis).

Context: Sixth VAT Directive – Exemption for games of chance – Determination of the conditions and limitations to which the exemption is subject – Liability of games organised outside public casinos – Respect for the principle of fiscal neutrality – Article 13B( f) – Direct effect.

Article in the EU VAT Directive

Article 13(B)(f) of the Sixth VAT Directive (Article 135(1)(i) of the EU VAT Directive 2006/112/EC).

Article 135
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

C-453/02

Mrs Linneweber is the universal heir of her husband, who died in 1999. The latter had an administrative authorisation to provide to the public, for consideration, gaming and entertainment machines in restaurants and amusement arcades owned by him. Mrs Linneweber and her husband declared the income generated by the operation of those machines in the 1997 and 1998 tax years as exempt from VAT on the ground that income from the operation of gaming machines by licensed casinos is exempt from that tax.
However, the Finanzamt Gladbeck took the view that the income at issue was not exempt under Paragraph 4(9) of the UStG since it was not subject to betting, racing or lottery tax and was not derived from the operation of a licensed public casino.
The matter was brought before the Finanzgericht Münster (Germany) which upheld the action brought by Mrs Linneweber, on the ground that, by analogy with the judgment of the Court of Justice in Case C-283/95 Fischer [1998] ECR I-3369, the income from gaming machines must be exempted from VAT under Article 13B (f) of the Sixth Directive. In paragraph 28 of that judgment, the Court of Justice held that the principle of fiscal neutrality precludes a generalised distinction from being drawn between unlawful and lawful transactions in the levying of value added tax.
In support of its appeal on a point of law (‘Revision’) before the Bundesfinanzhof, the Finanzamt Gladbeck pointed out that the stakes and winning opportunities in the case of gaming machines installed in casinos are significantly higher than those in the case of gaming machines which are lawful outside casinos. Accordingly, contrary to the argument upheld by the Finanzgericht Münster, there was no competition between those two types of machine.

C-462/02

According to the case-file forwarded to the Court of Justice by the referring court, between 1987 and 1991 Mr Akritidis operated a casino in Herne-Eickel (Germany). He organised games of roulette and card games there. Under the terms of the licence he held, those games had to be organised according to rules laid down under a clearance certificate (‘Unbedenklichkeitsbescheinigung’) issued by the competent authorities.
Between 1989 and 1991 Mr Akriditis did not comply with the rules laid down by the competent authorities in either the roulette games or the card games. For instance, amongst other things, card racks were not used, higher stakes were accepted and he kept no record of turnover from the games.
The Finanzamt Herne-West assessed the turnover for that period taking the unlawful income from the roulette and card games into account. Following an objection by Mr Akriditis and in the light of the judgment in Fischer, cited above, the Finanzamt Herne-West decided that the income from the roulette games should not be subject to VAT. However it decided to treat the unlawfully operated card game as taxable and made a flat-rate assessment of the proportion of the turnover relating to the organisation of that game.
Mr Akriditis brought an action against that decision before the Finanzgericht Münster. That court held that, in line with the principles outlined by the Court of Justice in its judgment in Fischer, the card game at issue should be exempt from VAT pursuant to Article 13B(f) of the Sixth Directive. It also took the view that Mr Akriditis could rely on that provision directly before the national courts. There was no reason to limit the application of the principles established by the Court in that judgment to the roulette game.
In support of its appeal on a point of law (‘Revision’) before the Bundesfinanzhof, the Finanzamt Herne-West argued that the principles to which the Finanzgericht Münster referred were not applicable by analogy to the card game at issue in this case. In fact, unlike the game at issue in the case leading to the judgment in Fischer, there was no competition between the card game organised by Mr Akriditis and those organised by casinos, since those games were not really comparable. Mr Akriditis, for his part, submits that the card game as played in his establishments is equivalent to the ‘Black Jack’ game played in licensed public casinos.

Questions

C-453/02

Is Article 13B(f) of [the Sixth Directive] to be interpreted as precluding a Member State from making the organisation of gambling subject to value added tax if it is exempt when organised by a licensed public casino?
Does Article 13B(f) of [the Sixth Directive] prohibit a Member State from making the operation of a gaming machine subject to value added tax if the operation of a gaming machine by a licensed public casino is exempt, or must the game of chance machines operated outside casinos also be comparable for that purpose in essential respects, for example as regards the maximum stake and the maximum winnings, with the gaming machines in the casinos?
Is the installer of the machine permitted to rely on the exemption laid down in Article 13B(f) of [the Sixth Directive]?

C-462/02

Does Article 13B(f) of [the Sixth Directive] prohibit a Member State from making the organisation of a card game subject to value added tax solely if the organisation of a card game by a licensed public casino is exempt, or must card games organised outside casinos also be comparable for that purpose in essential respects, for example as regards the game rules, the maximum stake and the maximum winnings, with card games in the casinos?
Is the installer of the machine permitted to rely on the exemption laid down in Article 13B(f) of [the Sixth Directive]?

AG Opinion

A – In Case C-453/02

(1) Article 13B(f) of the Sixth Directive precludes the taxation of the operation of a gaming machine if the operation of a similar gaming machine by a licensed public casino is exempt from value added tax. When assessing the similarity of gaming machines, the national court must consider whether the use of the gaming machines operated in public casinos and those operated elsewhere is comparable for the average consumer and they are therefore in competition with each other, and the factors which must be taken into account in this respect include, in particular, the potential scale of winnings and the gambling risk.

(2) An individual may rely before a national court on exemption from tax pursuant to Article 13B(f) of the Sixth Directive in order to oppose national rules which are incompatible with that provision.

B – In Case C-462/02

(1) Article 13B(f) of the Sixth Directive precludes the taxation of the organisation of a card game if the organisation of a similar card game by a licensed public casino is exempt from value added tax. When assessing the similarity of card games, the national court must consider whether the use of the card games organised in public casinos and those organised elsewhere is comparable for the average consumer and they are therefore in competition with each other, and the factors which must be taken into account in this respect include, in particular, the potential scale of winnings and the gambling risk.

Decision

1. Article 13B(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 precludes national legislation which provides that the operation of all games of chance and gaming machines is exempt from VAT where it is carried out in licensed public casinos, while the operation of the same activity by traders other than those running casinos does not enjoy that exemption.

2. Article 13B(f) of the Sixth Directive has direct effect in the sense that it can be relied on by an operator of games of chance or gaming machines before national courts to prevent the application of rules of national law which are inconsistent with that provision.

Summary

National legislation is not permitted which provides that the operation of all games of chance and gaming machines in recognized public gaming banks is exempt from VAT, while the exercise of this activity by economic operators other than the operators of such gaming banks is not exempt.

The VAT exemption for games of chance has direct effect in the sense that it can be invoked by an operator of games of chance or slot machines before national courts to prevent the application of rules of national law that are incompatible with this provision.

Source