Flashback on ECJ Cases C-89/05 (United Utilities) – Call center services to organizer of telephone bets are not exempted

On July 13,2006, the ECJ issued its decision in the case C-89/05 (United Utilities).

Context: Sixth VAT Directive – Article 13B(f) – Exemption for games of chance – Scope – Activity of a call centre

Article in the EU VAT Directive

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

Article 135 (Exemptions for other activities)
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

United Utilities is the representative member of a group of companies treated as a single taxable person within the meaning of the second subparagraph of Article 4(4) of the Sixth Directive. Vertex is also a member of that group.
Littlewoods organises telephone bookmaking under the name of ‘Bet Direct’. Its customers can bet on the outcome of sporting events or other random events, such as meteorological events. The bets are placed exclusively by telephone. In 1999, Littlewoods decided to outsource part of its operations and, for that purpose, entered into a contract with Vertex for the provision of call centre services. Pursuant to that contract, Vertex, which is also authorised to act as Littlewood’s agent, is required to provide the staff, premises and telephone and computer equipment necessary to take the bets in question.
Littlewoods selects sporting or other events on which bets may be placed, fixes the odds, appraises the bets and manages the revenue and expenditure relating to the bets.
For its part, Vertex merely receives telephone calls and records the bets in accordance with the conditions stipulated by Littlewoods. In that respect, Vertex has no discretion. Moreover, at no stage do Vertex employees disclose to customers placing bets that they are dealing with Vertex and not with Littlewoods. In addition, the name ‘Vertex’ does not appear in any documentation intended for customers.
Vertex’s fee consists of a fixed element and a variable element. The variable element is based on the number of call minutes for telephone calls received by Vertex. Various penalties are provided for if Vertex makes a mistake in the performance of its duties. The fee takes no account of either the number or value of bets recorded, or the odds on those bets. Vertex bears no financial risk in relation to the bets offered by Littlewoods.
United Utilities takes the view that the services provided by Vertex fall within the scope of Article 13B(f) of the Sixth Directive and must accordingly qualify for the exemption from VAT provided for by that provision.
In support of its position, United Utilities submits, firstly, that Article 13B(f) of the Sixth Directive is intended to exempt the activity of providing the framework within which gambling can take place. The provision of the framework, that is, the facilities, within which or by means of which gambling can take place is, therefore, an activity that may be exempted from charge.
Further, it is clear from Case C-2/95 SDC [1997] ECR I-3017 and Case C-235/00 CSC Financial Services [2001] ECR I-10237 that the exemption at issue in the main proceedings should apply to the services of an agent so long as the agent is instrumental in the gambling transaction itself. On any other interpretation, that exemption would apply only to certain of the elements which make up the framework within which a gambling transaction is carried on.
United Utilities then submits that it is clear from the case-law of the Court relating to the exemption from VAT of financial services (SDC Case C 349/96 CPP [1999] ECR I-973, and CSC Financial Services, cited above) that, where an agent undertakes a transaction on behalf of a principal, then, for the purposes of exemption from VAT, the agent’s supply to the principal is to be analysed by reference to its precise role in the underlying transaction between the principal and the end customer. Only if the agent carries out an ‘essential act which alters the legal or financial situation between the parties’, in a transaction falling within one of the exempt categories, will that agent’s supply be exempt. It is irrelevant whether that agent is an agent for the principal or an agent for the customer.
That case‑law applies, mutatis mutandis, to the exemption from VAT of betting and gambling. Thus, entering into the betting contract is the specific essential function of gambling or betting as it alters the legal and financial situation between the parties. Since Vertex’s oral acceptance of bets is sufficient to establish a legal relationship between customers placing bets and Littlewoods, Vertex performs the specific essential function of betting organiser.
Lastly, United Utilities maintains that the interpretation it puts forward is not affected by the fact that Vertex does not have any discretion whether or not to accept bets on behalf of Littlewoods, since entering into a contract could never constitute an administrative act.
The Commissioners do not share that view and consider that the exemption provided for in Article 13B(f) of the Sixth Directive does not apply to the services provided by Vertex as they are merely physical, technical or administrative services supplied to the betting organiser.
The VAT and Duties Tribunal, the High Court of Justice and the Court of Appeal, in turn, rejected United Utilities’ arguments.

Questions

Does the exemption for betting laid down in Article 13B(f) of the … Sixth … Directive … apply where a person (‘the agent’) provides services on behalf of another person (‘the principal’) of accepting bets from customers and communicating their acceptance by the principal to customers where:

(a) the actions of the agent perform a necessary step in creating the legal relationship of a bet between the principal and its customer and thereby consummate the betting transaction; but

(b) the agent makes no decisions as to the setting of odds, the odds being set by the principal or in some cases determined by third parties under the rules of the sport in question; and

(c) the agent decides whether or not to accept bets on behalf of the principal in accordance with criteria laid down by the principal so that the agent has no discretion?

AG Opinion

None

Decision

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, must be interpreted as meaning that the provision of call centre services to a telephone bookmaking organiser, which entails the staff of the supplier of those services accepting bets on behalf of the organiser, does not constitute a betting transaction within the meaning of that provision and cannot, therefore, qualify for the exemption from VAT laid down by that provision.

Summary

The exemption for games of chance must be interpreted as meaning that ‘call centre’ services provided to an organizer of telephone bets, whereby the staff of the provider of those services accept bets on behalf of the organiser, cannot be regarded as a bet within the meaning of that provision. and therefore cannot fall under the VAT exemption of this provision.

Source