Flashback on ECJ cases C-38/93 (Glawe) – Taxable Amount for Gaming Machines: Stakes Excluding Winnings Proportion

On May 5, 1994, the ECJ issued its decision in the case C-38/93 (Glawe).

Context: Tax provisions ° Harmonization of laws ° Turnover taxes ° Common system of value added tax ° Taxable amount ° Provision of services ° Consideration actually received by the provider of services ° Slot machines ° Exclusion of the fixed proportion of the stakes compulsorily paid out to players in the form of winnings

Article in the EU VAT Directive

Article 11(A)(1)(a) of the Sixth VAT Directive (Article 73 of the EU VAT Directive 2006/112/EC).

Article 73
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.

Facts

Glawe installs and operates gaming machines in bars and restaurants. The operation of such machines is regulated by law. Before they are first put into service, the operator is required to fill the reserve compartment holding the stock of coins from which winnings are paid out. When a player inserts a coin into the machine, it enters the cash box compartment if the reserve is full. If, following the payment of winnings, the reserve is no longer full, the coins inserted by players do not fall into the cash box but enter the reserve. When the operator opens the machine, he can only remove the contents of the cash box, and, before putting the machine back into service, he must replenish the reserve if it is not full. The machines must be set in such a way that they pay out as winnings at least 60% of the coins inserted by players (the stakes) after deduction of turnover tax, with the remainder, some 40%, being retained in the cash box.
In assessing Glawe’ s VAT liability for the year 1991, the Finanzamt took as the taxable amount, for the purposes of the German legislation implementing Article 11 of the Sixth Directive, the total stakes inserted into the machines in that year, less VAT, which it estimated by a method which is not contested in the main proceedings, given that the machines were not required to be fitted with a meter recording the stakes inserted.
Glawe believed that the Finanzamt should have taken as the taxable amount only the stakes actually remaining in the cash boxes of the machines, that is to say, the sums inserted, less both VAT and the winnings paid out to players. It therefore entered an objection against the Finanzamt’ s notice of assessment. When that objection was dismissed, Glawe brought an action before the Finanzgericht Hamburg

Questions

1. In the case of gaming machines offering the possibility of winning, is the taxable amount for the purposes of Article 11 A(1)(a) of the Sixth Directive the total stakes inserted without deduction of the winnings automatically paid out to players?
2. If the winnings paid out must be deducted: Does the principle of individual taxation require that winnings should be deducted only to the extent of the individual stake for a game or a series of games?
3. If Question 1 is answered in the negative: Do the winnings automatically paid out constitute wholly or partly – to the extent of the individual stake for a game or series of games – rebates for the purposes of Article 11 A(3)(b) of the Sixth Directive?

AG Opinion

Article 11A(1)(a) of the Sixth VAT Directive must be interpreted as meaning that, where a Member State subjects to VAT supplies of services consisting in the making available of gaming machines offering the possibility of winning money, the taxable amount in respect of such supplies over a given period does not include that proportion of the total stakes inserted which corresponds to the winnings paid out to successful players during that period.

Decision

Article 11A(1)(a) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization 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 the case of gaming machines offering the possibility of winning, the taxable amount does not include the statutorily prescribed proportion of the total stakes inserted which corresponds to the winnings paid out to the players.

Summary

The taxable amount in respect of a provision of services within the meaning of Article 11 A(1)(a) of the Sixth Directive 77/388 consists of the consideration actually received in return for the service provided. In the case of gaming machines offering a chance of winning (slot machines) which, pursuant to mandatory statutory requirements, are set in such a way that they pay out as winnings a certain percentage of the stakes inserted, the consideration actually received by the operator in return for making the machines available consists only of the proportion of the stakes which he can actually take for himself.

Consequently, the aforementioned provision must be interpreted as meaning that the taxable amount in respect of such machines does not include the statutorily prescribed proportion of the total stakes inserted which corresponds to the winnings paid out to the players.

Source