On June 10, 2010, the ECJ issued its decision in the case C-58/09 (Leo-Libera).
Context: Reference for a preliminary ruling – Value added tax – Directive 2006/112/EC – Article 135(1)(i) – Exemption of betting, lotteries and other forms of gambling – Conditions and limitations – Discretionary power of the Member States
Article in the EU VAT Directive
Article 135(1)(i) in the EU VAT Directive
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
- Leo-Libera operates a gaming hall equipped with gaming machines. In its VAT return for January 2007, it declared the operations in connection therewith. Following determination of its provisional payment on account by the Finanzamt, it lodged a complaint against that determination, claiming that those transactions were exempt from VAT. It expressed the view that the amendment made to Paragraph 4(9)(b) of the Umsatzsteuergesetz 2005 by the StEindämmG was contrary to Community law.
- Following the Finanzamt’s rejection of that complaint as unfounded, Leo-Libera brought an action before the Finanzgericht (Finance Court). That court dismissed the action on the ground that the transactions at issue were not exempt under Paragraph 4(9)(b) of the UStG. The only transactions which were exempt under that provision were, in the view of the Finanzgericht, those which came within the scope of the RennwLottG. Transactions relating to gaming machines were not, however, included in the category of exempt transactions. That court added that Article 135(1)(i) of Directive 2006/112 allows Member States to provide for derogations from the tax exemption.
- In support of its appeal on a point of law (‘Revision’) brought before the Bundesfinanzhof (Federal Finance Court), Leo-Libera maintains that, in accordance with Article 135(1)(i) of Directive 2006/112, a Member State cannot exempt from VAT only betting and lotteries, but must also exempt ‘other forms of gambling’ from that tax. National legislatures are, admittedly, empowered to make that exemption subject to conditions and limitations. However, it argues, they are precluded from taxing ‘other forms of gambling’ in a general way. Inasmuch as the German legislation makes approximately 63% of all gambling transactions occurring within German territory subject to VAT, only a minority of the transactions still enjoy the exemption provided for by Directive 2006/112. The national legislation therefore does not comply with Community law. Furthermore, it submits, that legislation infringes the principle of fiscal neutrality since it places the operators of gaming machines at a disadvantage in relation to public casinos, inasmuch as the latter can pass VAT on to gamblers.
- The Bundesfinanzhof expresses doubts as to whether Paragraph 4(9)(b) of the UStG is compliant with Community law. That court takes the view that, under Article 13B(f) of the Sixth Directive, as interpreted by the Court of Justice, the organisation and operation of gambling must, as a matter of principle, be exempted from VAT. The same finding applies with regard to Article 135(1)(i) of Directive 2006/112 since the wording of the two Community provisions in question is identical.
- Paragraph 4(9)(b) of the UStG restricts that exemption to a limited number of forms of gambling, namely lotteries and betting, even though these account for only a minor proportion of all gambling transactions conducted in Germany and of the turnover generated by that activity within that territory.
Questions
Is Article 135(1)(i) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax to be interpreted as meaning that Member States are permitted to have a rule under which only specified forms of (race) betting and lotteries are exempt from tax, and all ‘other forms of gambling’ are excluded from the tax exemption?
AG Opinion
Article 135(1)(i) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a Member State is entitled to limit the exemption of gambling from value added tax to a limited number of forms of gambling, such as betting and lotteries, and to make all other forms of gambling, including slot machines, subject to that tax.
Decision
Article 135(1)(i) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the exercise of the discretionary power of the Member States to fix conditions and limitations on the exemption from value added tax provided for by that provision allows those States to exempt from that tax only certain forms of gambling.
Summary
The exemption for games of chance must be interpreted as permitting the Member States, by virtue of their competence to attach conditions and limitations to the VAT exemption provided for therein, to exempt from that tax only certain games of chance and money.
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