In accordance with Article 135(1)(i) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the “VAT Directive”), betting, lotteries and other games of chance or gambling are exempt from VAT, subject to the conditions and limits determined by each Member State.
Whilst this legal provision appears to give Member States unfettered discretion to decide whether to tax or exempt certain gambling services, the ECJ has often emphasised that exemptions must be interpreted strictly, as they are exceptions to the general rule of VAT being applied to all services.
In this respect, the notion of fiscal neutrality has become a fundamental part of the determination in whether or not to tax certain gambling services. Fiscal neutrality is inherent to the common system of VAT and ensures that the provision of similar goods or services is treated equally for VAT purposes.
This concept has been the focal point of various judgements, both at European and Member State level, throughout the years. In Rank Group Plc v HMRC (2011), the differential VAT treatment of certain mechanised cash bingo and slot machine games to games of a similar character was brought into question. A preliminary reference was made to the Court of Justice of the European Union (“CJEU”), which expressed, in no uncertain terms, that a difference in VAT treatment between two identical or similar services that meet the same consumer needs constitutes a clear breach of fiscal neutrality. In addition, when determining the differential VAT treatment of games of chance, primary importance should not be given to the licensing categories or legal regimes regulating those games, but rather whether the games are deemed to be similar from the perspective of the average consumer.
More recently, and arguably more significantly, the ECJ issued its judgement in relation to case C-741/22 (Casino de Spa SA and Others v État belge). In this case, the ECJ shed light on whether a Member State may apply different VAT treatments to online lotteries and other online games of chance. To provide some background, in December 2022, Casino de Spa SA and twenty-six other applicants made a request for a preliminary ruling, in light of ongoing proceedings in Belgium. One of the main areas of contention related to the Belgian State’s alleged infringement of the principle of fiscal neutrality of VAT.
The ECJ, in its decision, cited settled case-law, highlighting that the principle of fiscal neutrality precludes, in particular, similar goods or services which are, due to their similar nature, in competition with each other, from being treated differently from a VAT perspective. In other words, it is necessary to examine whether the services in question can be exchanged for one another, from the point of view of the average consumer.
On this point, and in the context of gambling activities, Advocate General Kokott’s opinion made it clear that:
“[…] online gambling differs from ‘analogue’ gambling in terms of location (anytime and anywhere versus specific locations); the effort required to start such gambling (no effort, as possible anytime and anywhere via smartphone, versus physical movement to a specific location required); the lack of ‘social control’ of gambling in private which is possible at any time; the potential for addiction or the danger of gambling that is available and easily accessible at any time, and also the way in which the gambling is carried out (click on the computer versus physical action on a slot machine or even interaction with a person (for example, a croupier) on site). A visit to an ‘analogue’ casino can be described more as an ‘event’, whilst a ‘visit’ to a website (‘online casino’) can be described more as ‘gambling on the internet’”
The ECJ confirmed its position that Article 135(1)(i) does not preclude differential VAT treatment for land-based games and online games provided that there exist objective differences between the services which would likely have a considerable influence on the consumer to use one over the other. In other words, they are non-comparable in the eyes of the consumer to the extent that one service would not be exchanged for another.
On the same day that the Casino de Spa SA case was decided, the ECJ published its decision on case C-73/23, Chaudfontaine Loisirs SA v État belge whereby it reiterated the principle that Member States may apply differential VAT treatment to different gambling products, provided that the principle of fiscal neutrality is respected. In this case, the ECJ once again confirmed that Article 135(1)(i) does not preclude differential treatment between gambling which is provided electronically and gambling which is not provided electronically. However, the differential tax treatment must be justified to the extent that the different gambling services are not comparable in the eyes of the consumer and would essentially fulfil different needs of the consumer.
Conclusion
Recent jurisprudence could have significant implications for the gaming industry. In light of the decisions cited above, there exists a clear argument that the provision of online gambling services can be taxed differently from land-based or “analogue” gambling services, based on the view that the two categories are not comparable in the eyes of the consumer.
Whilst each Member State has the prerogative and discretion to impose conditions and limitations to the general exclusion established in Article 135(1)(i) of the VAT Directive, the principle of fiscal neutrality remains instrumental to justify such conditions or limitations.
